Archive for the ‘Sanctions’ Category

Foreign Subsidiary of Robbins & Myers Pleads Guilty to Illegal Export of Drilling Equipment to Syria

Monday, November 24th, 2014 by Brooke Driver

By: Brooke Driver

Robbins & Myers Belgium S.A., a subsidiary of Myers & Robbins Inc. has agreed to pay a total of $1 million in criminal fines and to serve a term of corporate probation for four separate violations of the International Emergency Economic Powers Act and the Export Administration Regulations.

Around the date of May 2006, an internal auditor of the U.S. parent company to the Belgium branch discovered that Robbins & Myers Belgium had illegally shipped stators made from U.S. steel to a Syrian customer. Although, after this discovery, the parent company informed the foreign branch of the violation and ordered that it stop these shipments, the subsidiary to do business with the Syrian customer between August and October 2006 and attempted to hide related documents from government investigators.

Under Secretary of Commerce Eric L. Hirschhorn said of the case that it:

“…shows that the United States will vigorously enforce its export laws against companies doing business with Syria, a state-sponsor of terrorism and home to one of the most brutal regimes on earth…The Department of Justice will hit companies that do business with Syria where it hurts most: the bottom line. This company will pay fines, penalties, and forfeitures more than 50 times greater than the proceeds of the sales.”

“The significant civil and criminal penalties in this case show our resolve to pursue and prosecute those who flout our export control laws. We will continue to work in concert with our partner agencies to ensure that U.S. technology stays out of the wrong hands.”

Commerce Department Tells Specific Exporters Not to Use STA for Arabsat

Monday, November 24th, 2014 by Brooke Driver

By: John Black

Over the past month or so, the Bureau of Industry and Security in the US Department of Commerce has been sending letters to individual exporters informing them that they may not use License Exception STA to export for 9X515 items for use in the Arab Satellite Communications Organization (Arabsat) 6th Generation satellite project.  BIS sent the letters to individual addresses of specific exporters, and not necessarily to their corporate headquarters.  If a single location of your corporation received this notice, it should be passing the warning on to all other locations who could be involved in similar activities.

If your location received this letter, you would be well advised to share it with any other location of your corporation that may be dealing with Arabsat 6th Generation satellite.  Nothing in the letter says, after all, that it is applicable only to the location at the address at the top of the letter.

U.S. Russia Sanctions—What You Need to Know and Do Now

Tuesday, October 7th, 2014 by Brooke Driver

By: John Black

As U.S. trade sanctions on Russia continue to evolve and expand, they are beginning to have an increasingly significant impact on U.S. and non-U.S. exporters and financial institutions.  As the rules expand, their complexity increases a bit.  Nonetheless, the current rules remain focused on a small number of important Russian entities and on Russian military end uses and military end users.  It’s high time for a summary of where the rules stand today.

As a result of the Russian invasion and military actions in Ukraine, the U.S. imposed its first round of trade sanctions against Russia in March 2014.  As Russian military forces continue at least to stay in, if not be active in, Ukraine (depending on the state cease-fire at any given moment), the U.S. is continuing to expand its trade sanctions and export/reexport controls on Russia.  Canada, the European Union and other countries that have export controls also have imposed ever-expanding sanctions and export controls on Russia—in some cases, these other countries have restrictions that are broader than the U.S. restrictions.

While the initial round of U.S. actions might not have had a significant impact on exporters and reexporters, each subsequent expansion of U.S. restrictions is gradually and significantly expanding the impact.  At one level, the U.S. rules are complex, but before digging into the complex details (and in order to know if you should dig into the complex details), take a look at the following breakdown of current U.S. restrictions aimed at Russia.

1)  General Focus on Russia Defense, Financial and Energy Sectors:  The U.S., along with many other countries, is focusing its restrictions on the defense, financial and energy sectors in the Russian economy.  The U.S. has put some significant Russian entities in these sections on special restricted parties lists.

2) Export/Reexport License Review Policy:  The United States has a stricter license approval policy for Russia.  In short, if you apply for a license for a listed party or for activities involving the Russian defense, energy and financial sectors, you should expect that there is a good chance it will not be approved.  There certainly may be some cases where licenses will be approved, but those likely are the exceptions to the rule.  License applications for other exports/reexports to other sectors of the Russian economy will be reviewed on a case-by-case basis, which means that certain applications that were routinely approved in the past may not be approved now.

3) It Starts with Russian Parties Added to Restricted Parties Lists:  Both the Office of Foreign Assets Control and the Bureau of Industry and Security have added Russian entities that are primarily in the defense, energy and financial sectors to their respective restricted parties list.   OFAC new rules are largely focused on its new list known as the Sectoral Sanctions Identification (SSI) List.  BIS added Russian parties of concern to its Entities List.

While U.S. prohibited parties lists include a wide range of obscure persons, companies and entities around the world, the newly added Russian entities include leading Russia energy, defense and financial entities.  This means that the odds of you dealing with a newly listed Russia entity are significantly higher than the odds of you dealing with an obscure terrorist entity located in remote areas of Yemen.  If you are using a third party screening tool, such as mkdenial.com or a constantly updated internal prohibited parties list, you are already in a position to ensuring you are screening all known names of all known parties you do business with against the most up-to-date lists.  That is the critical first step.

The critical second step is to go to the OFAC and BIS websites and look at the names of the newly listed parties to see if they are parties with which you have done business or you may soon do business.  Share the lists of the new parties with other people in your organization that should know about the new listings.   Compare the lists to what you are doing in Russia, especially in light of OFAC’s rule that its restrictions apply to entities that are not listed if one or more listed entities owns a combined 50% or more of the unlisted entity.

If you find out you are dealing (or might soon deal or have dealt) with a new listed party, you need to know what the new rules are for those parties.

4) OFAC Rules for the SSI Parties:  The rules are not as simple as “you may not do business with a newly listed SSI.”  Operating under several executive orders OFAC has issued directives that describe its new, limited restrictions on dealing with these parties.  In short:

  • SSI Financial Services Entities:  You may not be involved in financing for debt longer than 30 days maturity or new equity to listed financial sector entities according to the July 16, 2014 amended Directive 1.  You may not be involved in activities prohibited by the prior version of Directive 1 which had a 90 day rule.
  • SSI Energy Entities:  You may not be involved in financing for debt longer than 90 days maturity to listed energy sector entities according to the July 16, 2014 amended Directive 2.  You may not be involved in activities prohibited by the prior Directive 2.In addition, Directive 4 says you may not export or reexport anything in support of exploration or production for deep water, Artic offshore, or shale projects that have the potential to produce oil in the Russian Federation when listed energy section entities are involved.
  • SSI Defense and Related Materiel Entities:  You may not provide financing for debt longer than 30 days maturity to listed defense and related material entities according to Directive 3.

As you see, the OFAC directives do not prohibit all exports or reexports.  In some cases, a problem would involve making an otherwise legitimate export with a problematic 90 day payment term that would exceed the 30 day limit.  In other cases, the comprehensive ban on exports and reexports to energy sector entities applies only when the activities involve deep water, Arctic offshore or shale projects.

5) BIS Rules for Parties on the Entities List:  BIS rules for its newly listed entities depend on the entity.  For many certain newly listed entities, all items subject to the EAR require an export/reexport license.  For other newly listed items, such as Gazprom OAO, a license is required only when items are destined for deep water, Arctic offshore, or shale oil or gas exploration or production operations in Russia as described in 746.5.  When you find a listed entity, the Entity List will give you the rules applicable to that entity.

6)  BIS Controls on Certain Items to Certain Energy Activities:  The EAR has new rules that prohibit the export, reexport or in-country transfer of items in ECCNs 0A988, 1C992, 3A229, 3A231, 6A991, 8A992 or 8D999, or items in the new Supplement No. 2 to 746 when those items are destined to either unknown end use or for use directly or indirectly related to the exploration or production of oil or gas in Russian deep water, Arctic offshore or shale formations.  Supplement No. 2 to 746 uses Schedule B Numbers to identify the items it controls.  Importantly, these new rules apply even when the items are not destined for a Russian energy entity on a BIS or OFAC list.

7)  BIS Imposes Military End-Use Export/Reexport Controls on Russia:  BIS now applies the long standing 744.21 China military end use rule to Russia.  As with China, this rule requires a license for normally NLR items in ECCNs in Supplement No. 2 to 744 when destined for certain limited “military end use” activities as defined in 744.21.  These uses include delivery to activities involving the production of military items, but do not include a complete ban on delivery to military entities, as it focuses on the nature of the end use, not on the end user.

BIS also created a military end user rule for Russia in 744.21 that does not apply to China.  This rule is a complete ban on delivery of the Supp. 4 ECCNs to military end users in Russia, which include national armed services (army, navy, marine, air force or coast guard), as well as the national guard and national police, government intelligence or reconnaissance organizations, or any person or entity whose actions or functions are intended to support “military end uses” as defined in 744.21.

Finally, a license is required for Russia, like China, for all items controlled in 9X515 and 600 series ECCNs including the y. paragraphs that are No License Required for most other countries.

8)   What Should You Do?  The first thing you need to do is make sure you take a close and thorough look at the new rules to determine the extent to which you are involved in activities with the listed parties or subject to the new energy sector end use restrictions, the military end-use restrictions, or the military end user restrictions.  Take immediate measures to comply with the current rules as they apply to your current activities.  This includes non-traditional export compliance issues, such as looking at payment terms when dealing with OFAC listed entities.

Next, take a look at your current and near future activities in Russia to see which things you are doing that might be hit by future expansions of U.S. restrictions.  I do not know what is next, but certain potential areas where we could see new restrictions come to mind.  For example, you might want to consider what you would do if future restrictions would apply to one or more of the following that you are currently engaged in:

  • Activities with currently unlisted parties in the defense, energy or financial sectors
  • Non-military business with Russian entities who are engaged in both military and non-military activities
  • Dealings with the Russian Government
  • Russian energy activities that are not currently the targeted activities
  • Russian entities that are not listed but are related to listed entities or are similar to listed entities

8)  The Future of U.S. Sanctions and Export/Reexport Controls on Russia:  It looks like Russia might be moving ahead of China on the list of U.S. export controls biggest concerns.  I don’t know what is next or who is next, but I did give some ideas about potential areas where the U.S. could expand restrictions.   Right now the U.S. and other countries seem to be ratcheting up trade sanctions as Russian forces continue to stay in, or be active in, Ukraine.  If Russia does not change its actions, it is reasonable to expect the United States to continue to expand its sanctions and export/reexport controls on Russia.  It is not likely that the United States will impose on Russia sanctions and export/reexport controls similar to U.S. rules for Cuba, Iran, North Korea, Sudan and Syria.

On the other hand, the United States very well could lift all of its sanctions and controls on Russia if Vladimir Putin and the leaders of the United States, Canada and the EU make amends and sit down around the campfire singing Kumbayah while President of the United States John Black plays accompaniment on guitar.

OFAC Releases Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property are Blocked

Tuesday, October 7th, 2014 by Brooke Driver

Source: Federal Register

In response to inquiries, the Office of Foreign Assets Control released revised guidance regarding OFAC’s position on entities owned 50 percent or more in the aggregate by more than one blocked person. According to OFAC, “Property blocked pursuant to an Executive order or regulations administered by OFAC is broadly defined to include any property or interest in property, tangible or intangible, including present, future or contingent interests. A property interest subject to blocking includes interests of any nature whatsoever, direct or indirect.

Persons whose property and interests in property are blocked pursuant to an Executive order or regulations administered by OFAC (blocked persons) are considered to have an interest in all property and interests in property of an entity in which such blocked persons own, whether individually or in the aggregate, directly or indirectly, a 50 percent or greater interest. Consequently, any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered to be a blocked person. The property and interests in property of such an entity are blocked regardless of whether the entity itself is listed in the annex to an Executive order or otherwise placed on OFAC’s list of Specially Designated Nationals (“SDNs”). Accordingly, a U.S. person generally may not engage in any transactions with such an entity, unless authorized by OFAC. In certain OFAC sanctions programs (e.g., Cuba and Sudan), there is a broader category of entities whose property and interests in property are blocked based on, for example, ownership or control.

U.S. persons are advised to act with caution when considering a transaction with a non-blocked entity in which one or more blocked persons has a significant ownership interest that is less than 50 percent or which one or more blocked persons may control by means other than a majority ownership interest. Such entities may be the subject of future designation or enforcement action by OFAC. Furthermore, a U.S. person may not procure goods, services, or technology from, or engage in transactions with, a blocked person directly or indirectly (including through a third-party intermediary).”

Red Bull’s Cuban Documentary Violates the CACR

Thursday, August 28th, 2014 by Brooke Driver

By: Brooke Driver

Red Bull might give you wings, but that doesn’t mean you should fly (without a license). The energy drink company Red Bull North America, Inc. has agreed to settle with OFAC for $89,775 over its alleged seven violations of the Cuban Assets Control Regulations. Specifically, the company violated 31 C.F.R. part 515 of the CACR when it authorized seven Red Bull representatives to travel to Cuba in order to film a documentary between the dates of June 8 and June 18, 2009.

While the maximum penalty in this instance is $455,000, the base penalty is $105,000, and OFAC chose even to significantly reduce that fine despite the facts that:

  • Red Bull did not disclose its violations
  • Red Bull had prior knowledge of U.S. sanctions on Cuba and took steps to conceal the transactions
  • Red Bull is a U.S. subsidiary of a sophisticated multinational company with extensive experience in international trade (in other words, “you should have known better!”)

And considering the facts that:

  • The case was deemed non-egregious
  • Red Bull had not committed a violation in the five years prior to the incident
  • Red Bull immediately took remedial action in implementing an OFAC compliance program

Red Bull’s mishap acts as a forceful reminder that “export” applies to many more situations than a clear cut shipment of an item and that companywide training is essential for your protection. Marketing, in this case, and many other seemingly unrelated departments often perform or are involved in some form of exporting. Be sure to arm them with at least a high level awareness of the compliance risks they face.

BNPP Pays Nearly $9 Billion for Repeated Sanctions Violations

Thursday, August 28th, 2014 by Brooke Driver

By: Brooke Driver

The French bank BNP Paribas SA has agreed to pay $8.97 billion for its (get ready for this number) 3,897 apparent violations of the Sudanese Sanctions Regulations, Iranian Transactions and Sanctions Regulations, Cuban Assets Control Regulations and Burmese Sanction Regulations, a record breaking penalty for American sanctions violations. The enormity and global nature of the case prompted collaboration between OFAC, the U.S. Department of Justice, the New York County District Attorney’s Office, the Federal Reserve Board of Governors and the Department of Financial Services of the State of New York in the process of investigating BNPP’s violations and arriving at an appropriate consequence.

For a number of years prior to and including 2012, BNPP processed—and concealed—thousands of transactions to or through U.S. financial institutions involving parties subject to the aforementioned sanctions programs. In executing these illegal transactions, BNPP concealed, removed, omitted or obscured references to the sanctioned parties in related paperwork.

Specifically, between the dates of September 6, 2005 and July 24, 2009, BNPP processed 2,663 wire transfers totaling approximately $8,370,372,624 involving Sudanese entities, 318 wire transfers with a total value of $1,182,075,543 involving Iranian entities between July 15, 2005 and November 27, 2012, seven wire transfers for Burmese parties (totaling $1,478,371) between November 3, 2005 and sometime in May 2009 and 909 Cuba-related wire transfers between July 18, 2005 and September 10, 2012 with a total value of $689,237,183. The severity of the fine and year-long ban from conducting certain U.S. dollar transactions is a clear message to other financial institutions that might not take U.S. sanctions seriously.

OFAC claims that the settlement amount reflects the following factors:

  • BNPP had knowledge that its conduct might have violated U.S. law
  • At least one member of BNPP senior management and multiple supervisors  were aware of the company’s illegal conduct
  • The violations are numerous and span many years
  • The illegal transactions were large monetary transfers
  • BNPP had not received a violation notice in the five years leading up to the settlement
  • BNPP cooperated with OFAC’s investigation
  • BNPP has taken remedial action to prevent further U.S. sanctions violations

Commerzbank OFAC’s Next Target for Large Sanctions Violation Penalty

Thursday, August 28th, 2014 by Brooke Driver

By: Brooke Driver

Currently, the French bank BNP Paribas is receiving a lot of attention, due to its record breaking fine of nearly $9 billion for breaking U.S. sanctions laws. However, it seems that the German-based Commerzbank will serve as the U.S.’s next example of what can happen to a financial intuition that foolishly ignores U.S. law.

The bank, which has entered into settlement negotiations with the combined forces of OFAC, the Department of Justice, the Treasury Department, the Federal Reserve and the Manhattan District Attorney, is expected to pay between $600 million and $800 million to resolve its violations of sanctions regulations, including Iranian transactions, amongst others.

Among the actions in question are Commerzbank’s business transactions with the Islamic Republic of Iran Shipping Lines, which was designated for economic sanctions in 2008 for allegedly supporting Iran’s proliferation of weapons of mass destruction. Apparently, Commerzbank continued to work with the company, despite the fact that it had prior knowledge of the sanction. ECTI will keep you updated as the case unfolds.

Epsilon Pays Over $4 Million for ITSR Violations

Thursday, August 28th, 2014 by Brooke Driver

By: Brooke Driver

Epsilon Electronics Inc. of Montebello, California (A.K.A. Power Acoustik Electronics, Sound Stream, Kole Audio and Precision Audio) recently agreed to settle for $4,073,000 over its violations of the Iranian Transactions and Sanctions Regulations. Between the dates of August 26, 2008 and May 22, 2012, Epsilon issued 39 invoices for car and audio equipment (valued at $3,407,491 to a company that reexports nearly all of its products to Iran and has offices in Tehran, Iran and Dubai.

Epsilon was aware of the company’s relationship with Iran and was also issued a cautionary letter from OFAC in January of 2012 explaining the role of the ITSR in protecting U.S. interests. OFAC chose to demand the high fine based on Epsilon’s awareness that its actions were in violation of U.S. law and its apparent conscious efforts to obscure those actions.

Argentinian Travel Website to Pay $2,809,800 for Violations of the Cuban Assets Control Regulations

Wednesday, July 16th, 2014 by Brooke Driver

By: Brooke Driver

A Delaware company with its headquarters in Buenos Aires, Argentina, Decolar.com, recently agreed to pay OFAC $2,809,800 to settle for the charges against it. Apparently, between March 2, 2009 and March 31, 2012, Decolar allowed its foreign subsidiaries to aid 17,836 individuals with flight and hotel reservations for travel to and from Cuba. Of course, Decolar neglected to attain the proper licensure to do so. But, while the cost is high, Decolar must be relieved that OFAC did not enforce the full penalty charge of $4,460,000. In determining the settlement cost, OFAC claims to have considered the follow facts:

• Decolar disclosed the violations and cooperated with OFAC’s investigation
• Decolar has taken measures to develop a working OFAC compliance program
• Upon discovering the violations, Decolar immediately stopped offering Cuba-related travel services
• Decolar demonstrated reckless disregard for U.S. sanctions by failing to ascertain that its activities were not in violation of U.S. law (OFAC states here that Decolar naively took the word of an unidentified third party who assured Decolar management that it was in the clear. OFAC adds that Decolar should have been aware of the CACR restrictions on its activities).
• Decolar’s senior management was aware of its subsidiaries’ Cuba-related travel services

The two main take aways here, folks, are that:

1. When relying on a third party legal/export compliance advisor, do your homework. Before you stake your business’ reputation on his word, be sure that he knows what he’s talking about.
2. Recognize that you will be punished for violating laws you should know about, not just the ones you do know. OFAC made it very clear in this case that Decolar management reasonably should have known that it was in violation of U.S. law—and now the company is facing a fine with an uncomfortable amount of digits.
In other words, an untrained company is an unprotected company. Put in the hours, not the dough.

Washington State Resident Targeted by OFAC for Exporting Unlicensed Medical Goods to Iran

Wednesday, July 16th, 2014 by Brooke Driver

By: Brooke Driver

OFAC recently announced that Concord, CA company Sea Tel, Inc. has agreed to pay a settlement of $85,113 for its apparent violations of the Iranian Transactions and Sanctions Regulations. According to OFAC, between the dates of November 20, 2007 and February 26, 2009, Sea Tel invoiced a South Korean distributor for 16 orders of marine antenna systems totaling $378,281 in value. The California-based company then exported these products to South Korea with knowledge or reason to believe that they were intended for use on vessels owned by the National Iranian Tanker Company. Although OFAC emphasized that the illegal shipments caused significant harm to the American sanctions program and that Sea Tel’s actions revealed a pattern of reckless disregard for said sanctions, luckily for Sea Tel, OFAC chose to significantly lower its fine from the base penalty of $189,141, due to the facts that:

  • This was Sea Tel’s first offense
  • Sea Tel disclosed the violations to OFAC and cooperated throughout the investigation
  • Sea Tel had an OFAC compliance program in place when the violations occurred (although, obviously not a very good one)