Archive for the ‘Violations & Fines’ Category

Whirlpool Europe Srl (Italy)/Whirlpool Corporation to Pay Civil Settlements to Settle Alleged Antiboycott Violations

Wednesday, November 15th, 2017 by Danielle McClellan

By: Ashleigh Foor (Source: Commerce/BIS)

On September 25, 2017, Whirlpool Europe Srl (Italy) was charged with three violations of 15 CFR 760.2(a), refusal to do business, ten violations of 15 CFR 760.2(d), furnishing information about business relationships with boycotted countries or blacklisted persons, and eight violations of 15 CFR 760.5, failing to report the receipt of a request to engage in a restrictive trade practice or foreign boycott against a country friendly to the United States (Case No: 14-02(A)). A civil settlement of $72,450, if paid as agreed, will keep Whirlpool from being debarred or suspended from export transactions.

Related case number 14-02(B) involves Whirlpool Corporation. The company received a civil settlement of $9,000 for three violations of 15 CFR 760.2(d), furnishing information about business relationships with boycotted countries or blacklisted persons. No debarment or suspension will be placed if penalty is paid as agreed.

Miltech, Inc. of Northampton, MA Receives 18 Charges of Alleged Export Violations

Wednesday, November 15th, 2017 by Danielle McClellan

By: Ashleigh Foor

On September 25, 2017, Miltech, Inc. of Northampton, MA was charged a civil penalty of $230,000 due to engaging in conduct prohibited by the EAR when it exported items subject to the EAR from the United States to China and Russia without the required BIS Licenses. On eighteen separate occasions between, on, or around October 14, 2011 and July 14, 2014, Miltech exported active multiplier chains, items classified under Export Control Classification Number (“ECCN”) 3A001.b.4 and valued in total at approximately $364,947, without seeking or obtaining the licenses required for these exports pursuant to section 742.4 of the EAR. These items are controlled on national security and anti-terrorism grounds.

Miltech received 18 charges of 15 C.F.R. § 764.2(a) for engaging in prohibited conduct. $180,000 of the $230,000 penalty must be paid within 30 days, and the remaining $50,000 will be suspended and waived after two years if Miltech fulfills the terms of its settlement agreement and this order.  The company will not be debarred if penalty is paid as agreed and Miltech complies with other terms of this settlement.

Failing to Keep Current with Classifications Leads to Civil Penalty for NJ-based Company

Monday, October 16th, 2017 by Danielle McClellan

By: Ashleigh Foor

During the second week of September, Bright Lights USA, a Barrington, NJ-based company, received a $400,000 civil penalty from the State Department’s Directorate of Defense Trade Controls (DDTC) for exporting unauthorized defense components and technical data, which violates the International Traffic in Arms Regulations (ITAR).

Bright Lights notified DDTC of two ITAR violations in voluntary self-disclosures filed with the agency in April 2013 and June 2016.

Bright Lights failed to stay current with the former Obama administration’s Export Control Reform (ECR) regarding  the transition of ITAR-related commodities/technology from the State Department’s US Munitions List to the Commerce Control List. The wrong commodity jurisdiction was selected and resulted in export violations for both the physical export of the items and the illegal transfer of technology made by the company.

Want to make sure your company is staying compliant? We have an upcoming webinar on classifications:

EAR Hardware and Materials Classifications: Learning By Doing

Practice Makes Perfect—A Two-Part Webinar that Combines Hands-On Exercises, Discussions, and Instruction. October 25, 2017 & November 8, 2017

US Citizen CEO Sentenced to 57 Months in Prison for Conspiring to Export Specialty Metals to Iran

Monday, October 16th, 2017 by Danielle McClellan

By: Ashleigh Foor

On Friday, September 8, 2017, Erdal Kuyumcu, a US citizen and the chief executive officer of Global Metallurgy, LLC, based in Woodside, New York, was sentenced to 57 months in prison for conspiring to export specialty metals to Iran. The sentencing took place at the federal courthouse in Brooklyn, New York and proceedings held before Chief United States District Judge Dora L. Irizarry. In June 14, 2016, Kuyumcu plead guilty to conspiracy to violate the International Emergency Economic Powers Act by exporting specialty metals from the United States to Iran.

According to court documents, Kuyumcu conspired to export from the United States to Iran a metallic powder primarily composed of cobalt and nickel, without having obtained the required license from the US Treasury Department’s Office of Foreign Assets Control (OFAC). It was determined after a two-day presentencing evidentiary hearing that the metallic powder has potential military and nuclear uses. In order to prevent nuclear proliferation and terrorism, the US Department of Commerce requires a license to export and exporting without the required license is illegal.

In addition, Kuyumcu and others planned to obtain more than 1,000 pounds of the metallic powder from a US-based supplier, and hid the true destination of the goods by having it shipped first to Turkey and then to Iran. Coded language was used to keep this all secret, for instance, referring to Iran as the “neighbor.”  Once a shipment was sent from Turkey to Iran, a steel company in Iran would send a letter-sized package to Kuyumcu’s Turkey-based co-conspirator.

The Iranian steel company had the same address as an OFAC-designated Iranian entity under the Weapons of Mass Destruction proliferators’ sanctions program that was associated with Iran’s nuclear and ballistic missile programs.

Treasury/OFAC Announces Settlement Agreement With IPSA International Services, Inc.

Monday, October 16th, 2017 by Danielle McClellan

(Source: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/OFAC-Recent-Actions.aspx)

IPSA International Services, Inc. of Phoenix, Arizona agreed to settle its potential civil liability for 72 apparent violations of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR). The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced IPSA’s settlement of $259,200 on August 7, 2017. The apparent violations include, on 44 separate occasions, IPSA’s importation of Iranian-origin services into the United States in apparent violation of § 560.201 of the ITSR, and on 28 separate occasions, IPSA’s engagement in transactions or dealings related to Iranian-origin services by approving and facilitating its foreign subsidiaries’ payments to providers of Iranian-origin services in apparent violation of §§ 560.206 and 560.208 of the ITSR.  OFAC concluded that IPSA did not voluntarily disclose these apparent violations, and that the apparent violations constitute a non-egregious case.

OFAC’s web notice is included below.

ENFORCEMENT INFORMATION FOR AUGUST 10, 2017

Information concerning the civil penalties process can be found in the Office of Foreign Assets Control (OFAC) regulations governing each sanctions program; the Reporting, Procedures, and Penalties Regulations, 31 C.F.R. part 501; and the Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A. These references, as well as recent final civil penalties and enforcement information, can be found on OFAC’s website.

ENTITIES – 31 CFR 501.805(d)(1)(i)

IPSA International Services, Inc. Settles Potential Civil Liability for Apparent Violations of the Iranian Transactions and Sanctions Regulations: IPSA International Services, Inc. (IPSA), Phoenix, Arizona, has agreed to pay $259,200 to settle its potential civil liability for 72 apparent violations of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR). [FN/1] The apparent violations involve, on 44 separate occasions, IPSA’s importation of Iranian-origin services into the United States in apparent violation of § 560.201 of the ITSR, and on 28 separate occasions, IPSA’s engagement in transactions or dealings related to Iranian-origin services by approving and facilitating its foreign subsidiaries’ payments to providers of Iranian- origin services in apparent violation of §§ 560.206 and 560.208 of the ITSR.

OFAC determined that IPSA did not voluntarily disclose the apparent violations, and that the apparent violations constitute a non-egregious case. The total transaction value of the apparent violations was $290,784. The statutory maximum civil penalty amount in this case was $18,000,000, and the base civil penalty amount was $720,000.

IPSA is a global business investigative and regulatory risk mitigation firm that provides due diligence services for various countries and their citizenship by investment programs. In March 2012, IPSA entered into an engagement letter and fee agreement with a third country with respect to its citizenship by investment program (“Contract No. 1”). In October 2012, IPSA’s subsidiary in Vancouver, Canada (“IPSA Canada”) entered into a similar contract with a government-owned financial institution in a separate third country (“Contract No. 2”). While the majority of the applicants to both of these programs were nationals from countries not subject to OFAC sanctions, some were Iranian nationals. Since most of the information about Iranian applicants could not be checked or verified by sources outside Iran, IPSA Canada and IPSA’s subsidiary in Dubai, United Arab Emirates subsequently hired subcontractors to conduct the necessary due diligence in Iran, and those subcontractors in turn hired third parties to validate information that could only be obtained or verified within Iran. Although it was IPSA’s foreign subsidiaries that managed and performed both Contract No. 1 and Contract No. 2, with regard to Contract No. 1, IPSA appears to have imported Iranian-origin services into the United States because the foreign subsidiaries conducted the due diligence in Iran on behalf of and for the benefit of IPSA. With regard to Contract No. 2, IPSA also appears to have engaged in transactions or dealings related to Iranian-origin services and facilitated the foreign subsidiaries’ engagement in such transactions or dealings because IPSA reviewed, approved, and initiated the foreign subsidiaries’ payments to providers of the Iranian-origin services.

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, 31 C.F.R. part 501, app. A. OFAC considered the following to be aggravating factors: (1) IPSA failed to exercise a minimal degree of caution or care when it imported background investigation services of Iranian origin into the United States and when it reviewed, approved, and initiated its foreign subsidiaries’ payments to providers of Iranian-origin services, and the frequency and duration of the apparent violations constitute a pattern or practice of conduct; (2) at least one of IPSA’s senior management knew or had reason to know that it was importing and/or engaging in transactions or dealings related to services of Iranian origin; (3) the transactions giving rise to the apparent violations resulted in economic benefits to Iran, and the conduct underlying the apparent violations is not eligible for OFAC authorization under existing licensing policy [FN/2]; (4) IPSA is a commercially sophisticated company operating internationally with experience in U.S. sanctions; and (5) IPSA’s OFAC compliance program was ineffective in that it did not recognize or react to the risks presented by engaging in transactions that involved Iranian-origin background investigation services.

OFAC considered the following to be mitigating factors: (1) IPSA has no prior OFAC sanctions history in the five years preceding the earliest date of the transactions giving rise to the apparent violations; (2) IPSA undertook significant remedial measures by taking swift action to cease the prohibited activities, conducting an investigation to discover the causes and extent of the apparent violations, and adopting new internal controls and procedures to prevent reoccurrence of the apparent violations; and (3) IPSA substantially cooperated with OFAC’s investigation by conducting an internal look-back investigation for potential sanctions violations and submitting an investigation report to OFAC without receiving an administrative subpoena, promptly providing detailed additional information and documentation in a well-organized manner in response to OFAC’s multiple requests for information, and entering into a statute of limitations tolling agreement.

For more information regarding OFAC regulations, please go here.

CSE Global Limited and CSE TransTel Pte. Ltd. Pay Settlement for Apparent Violations Involving Iranian Companies

Monday, October 16th, 2017 by Danielle McClellan

By: Ashleigh Foor

A solely-owned subsidiary of CSE Global Limited (an international technology group), CSE TransTel Pte. Ltd., appears to have violated § 1705 (a) of IEEPA and § 560.203 of the ITSR and has agreed to pay a $12,027,066 settlement for the apparent 104 violations of the International Emergency Economic Powers Act 1 (IEEPA) and the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR). The apparent violations occurred on or around June 4, 2012 through March 27, 2013 when TransTel appears to have involved at least six different financial institutions in the unauthorized exportation or re-exportation of services from the United States to Iran, a prohibition of § 560.204 of the ITSR.

OFAC concluded that TransTel did not voluntarily make known these apparent violations, which OFAC found to be grounds for a serious case. The maximum and base civil monetary penalty for the apparent violations was $38,181,161.

TransTel first signed contracts with and received purchase orders from Iranian companies starting August 25, 2010 through November 5, 2011. The purchase orders were for multiple energy projects taking place in Iran and/or Iranian territory. In order to carry out the orders to deliver and install telecommunications equipment, TransTel hired several Iranian companies to deliver these goods and services on its behalf.

Preceding these interactions with Iranian companies, CSE Global and TransTel opened separate Singapore bank accounts (the “Bank”). Then-Managing Director and CSE Global’s then-Group Chief Executive Officer signed and sent a letter titled “Sanctions – Letter of Undertaking” to the Bank with the following statement: “In consideration of [the Bank] agreeing to continue providing banking services in Singapore to our company, we, CSE TransTel Pte. Ltd … hereby undertake not to route any transactions related to Iran through [the Bank], whether in Singapore or elsewhere.”  The Bank continued to provide financial services to the company after receiving the Letter of Undertaking and around June 2012, less than two months after the Letter of Undertaking was delivered, TransTel began transferring USD funds related to its Iranian business.

On or around the dates of June 4, 2012 to March 27, 2013 Transtel appears to have violated § 1705 (a) of IEEPA and/or § 560.203 of the ITSR when it initiated 104 USD wire transfers totaling more than $11,111,000 involving Iran. Transfers from the Bank went to several different third-party contacts including Iranian vendors. There was never any mention of Iran, the Iranian projects, or any Iranian parties on documentations involved in these transactions.

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, 31 C.F.R. part 501, app. A. OFAC considered the following to be aggravating factors:

(1) TransTel willfully and recklessly caused apparent violations of U.S. economic sanctions by engaging in, and systematically obfuscating, conduct it knew to be prohibited, including by materially misrepresenting to its bank that it would not route Iran-related business through the bank’s branch in Singapore or elsewhere, and by engaging in a pattern or practice that lasted for 10 months;

(2) TransTel’s then-senior management had actual knowledge of – and played an active role in – the conduct underlying the apparent violations;

(3) TransTel’s actions conveyed significant economic benefit to Iran and/or persons on OFAC’s List of Specially Designated Nationals and Blocked Persons by processing dozens of transactions through the U.S. financial system that totaled $11,111,812 and benefited Iran’s oil, gas, and power industries; and

(4) TransTel is a commercially sophisticated company that engages in business in multiple countries.

 

OFAC considered the following to be mitigating factors:

(1) TransTel has not received a penalty notice, Finding of Violation, or cautionary letter from OFAC in the five years preceding the date of the earliest transaction giving rise to the apparent violations;

(2) TransTel and CSE Global have undertaken remedial steps to ensure compliance with U.S. sanctions programs; and

(3) TransTel and CSE Global provided substantial cooperation during the course of OFAC’s investigation, including by submitting detailed information to OFAC in an organized manner, and responding to several inquiries in a complete and timely fashion.

This enforcement action reflects compliance obligations for all companies that conduct business in OFAC-sanctioned jurisdictions or process transactions through or related in any way to the United States. Prior to signing agreement letters, representatives should be certain they and their company are willing and able to abide by rules set forth.

Beware of Contracts Signed by Specially Designated Nationals

Thursday, August 3rd, 2017 by Danielle McClellan

(Source: Commonwealth Trading Partners)

By: Chalinee Tinaves, Esq., Commonwealth Trading Partners, ctinaves@ctp-inc.com.

On July 20, 2017, the Office of the Foreign Assets Control (OFAC) announced a $2 million penalty against ExxonMobil Corporation and two of its subsidiaries for violating the Ukraine-Related Sanctions Regulations. According to OFAC, ExxonMobil violated the sanctions when its execs dealt in services with Igor Sechin, President of Rosneft OAO, when they signed eight legal documents relating to oil and gas projects in Russia between May 14, 2014, and May 23, 2014.

If you’ll travel back in time to March 2014, as tensions were heating up regarding Russian deployment of military forces in the Crimea region of Ukraine, President Obama issued Executive Order 13661, “Blocking Property of Additional Persons Contributing to the Situation in Ukraine,” in response to actions deemed to constitute an unusual and extraordinary threat to the national security and foreign policy of the U.S. Section 1(a)(ii) authorized the Secretary of the Treasury to designate officials of the Government of the Russian Federation, block any property or interests in property, and prohibit dealing in any property and interests in property of a person listed on the Specially Designated Nationals and Blocked Persons List (SDN List). Section 4 of E.O. 13661 prohibited US persons from making “any contribution or provision of funds, goods, or services by, to, or for the benefit of any person whose property and interests in property are blocked pursuant to this order” as well as receiving “any contribution or provision of funds, goods, or services” from a designated person.

On April 28, 2014, OFAC designated Igor Sechin as an official of the Russian government, thereby generally prohibiting US persons from conducting transactions with him. Although Rosneft OAO is:

  • designated on the Sectoral Sanctions Identifications List (SSI List) pursuant to Executive Order 13662 “Blocking Property of Additional Persons Contributing to the Situation in Ukraine;”
  • subject to Directive 2 (prohibiting transacting in, providing financing for, or otherwise dealing in new debt of greater than 90 days maturity if that debt is issued on or after the sanctions effective date by, on behalf of, or for the benefit of the persons operating in Russia’s energy sector); and
  • subject to Directive 4 (prohibition against the direct or indirect provision of, exportation, or reexportation of goods, services, or technology in support of exploration or production for deepwater, Arctic offshore, or shale projects that have the potential to produce oil in the Russian Federation or in maritime area claimed by Russian Federation and extending from its Territory); nonetheless, Rosneft OAO is not designated on the SDN List and is therefore not subject to blocking sanctions.

As you can see, the conflict lies in how to conduct business transactions with an organization that is not blocked with an executive who is. According to the release, OFAC rejected ExxonMobil’s position that Sechin was acting in his professional capacity as President of Rosneft OAO when they signed the legal documents. Specifically, ExxonMobil referenced comments by a Treasury Department spokesman in April 2014 allowing BP Plc Chief Executive, Bob Dudley, to remain on the board of directors of Rosneft OAO so long as he did not discuss personal business with Sechin. In rejecting this argument, OFAC indicated that statement did not address ExxonMobil’s conduct nor did the plain language of Ukraine-Related Sanctions Regulations include a distinction between “personal” or “professional.” Further, OFAC has not interpreted the Regulations to create a carve-out for designated parties acting in their professional capacity.

Interestingly, in support of its position, OFAC pointed to its Frequently Asked Question #285 published on March 18, 2013, regarding the Burma Sanctions Program. Although conveniently now removed from OFAC’s FAQs and website following the termination of the Burma Sanctions Regulations, an archived link detailing FAQ #285 captured the full text of OFAC’s response to ministry dealings with a designated Burmese Government minister. According to OFAC:

A government ministry is not blocked solely because the minister heading it is an SDN. U.S. persons should, however, be cautious in dealings with the ministry to ensure that they are not, for example, entering into any contracts that are signed by the SDN.

However, in Treasury’s restatement of FAQ #285 in the ExxonMobil announcement, OFAC indicated that US parties should “be cautious in dealings with [a non-designated] entity to ensure that they are not providing funds, goods, or services to the SDN, for example, by entering into any contracts that are signed by the SDN.”

Rejecting ExxonMobil’s rebuttal that OFAC regulations state that different interpretations may exist among and between the sanctions programs that it administers, FAQ #285 “clearly signaled” that OFAC views the signing of a contract with an SDN as prohibited, even if the entity on whose behalf the SDN signed was not sanctioned in situations where sanctions programs also involve SDNs. These reasons, in addition to the definitions of “property” and “property interest” in the Ukraine-Related Sanctions Regulations, E.O. 13661, and statements issued by the White House and the Department of Treasury, served to provide ExxonMobil with notice that signing the legal documents with Sechin would violate the prohibitions in the Ukraine-Related Sanctions Regulations.

In assessing the penalty based on OFAC’s Economic Sanctions Enforcement Guidelines, among other aggravating factors, OFAC viewed ExxonMobil’s transaction to be a show of “reckless disregard for U.S. sanctions requirements when it failed to consider warning signs associated with dealing in the blocked services of an SDN” and contributed “significant harm” to the objectives of the Ukraine-Related Sanctions Program. Following the announcement, ExxonMobil stood by its position that it acted in full compliance with the sanctions guidelines in 2014 and argued that the Treasury Department is “trying to retroactively enforce a new interpretation of an executive order that is inconsistent with the explicit and unambiguous guidance from the White House and Treasury issued before the relevant conduct and still publicly available today.”

What does all this mean for U.S. companies? While FAQ #285 was initially crafted to address contracts with a designated government official (which Sechin satisfied based on his designation as a Russian official), it is unclear whether this interpretation would also be applicable in situations involving non-government SDNs and their corporate dealings. Further, the prohibited conduct of entering into a contract signed by an SDN in FAQ #285 was listed as an example. It is entirely possible that a range of other contract activities are prohibited by SDNs like negotiating a contract. Companies must be aware of the risks associated with projects that would require authorization by an SDN. Further, companies can mitigate their risk by screening all the parties involved in a transaction to avoid potentially violating a sanctions program.

Cryomech Charged for Illegal Export to Russian Company on Entity List

Wednesday, July 19th, 2017 by Danielle McClellan

By: Ashleigh Foor

Cryomech, Inc. of Syracuse, NY has received a charge involving its exports of  an LNP-20 Liquid Nitrogen Plant, an item classified as EAR99 in the EAR, from the United States to the All-Russian Scientific Research Institute of Experimental Physics (VNIIEF) a.k.a Russian Federal Nuclear Center-VNIIEF (RFNC-VNIIEF) in Sarov, Russia. Cryomech shipped this item, valued at $33,587, without the required BIS License on or around August 16, 2012. On June 9, 2017 the company received a civil penalty of $28,000 as well as an order to hire an unaffiliated third-party consultant with expertise in U.S. export control laws to complete an external audit of its entire export controls compliance program. Cryomech will not be debarred if penalty is paid and audit is completed with results submitted.

Settlement Documents: https://efoia.bis.doc.gov/index.php/documents/export-violations/export-violations-2015/1114-e2501/file

Export and Recordkeeping Violations Nets $700,000 Fine for Axis Communications

Wednesday, July 19th, 2017 by Danielle McClellan

By: Ashleigh Foor

On June 9, 2017 a total of 15 charges were brought against Chelmsford, MA company, Axis Communications, Inc, resulting in a $700,000 fine and a thorough audit of its entire export controls compliance program.

Thirteen of the charges were from exporting thermal imaging cameras without the required licenses on, around, or between the dates of March 16, 2011 and July 15, 2013. Axis exported thermal imaging cameras controlled by the Export Administration Regulations (EAR) from the United States to Mexico. Valued at $391,819, these exports required export license. Thermal imaging cameras, classified under Export Control Classification Number 6A003.b.4, are controlled for national security and regional stability reasons.

Axis also received two charges for failing to comply with EAR recordkeeping requirements. In mid-June of 2013, when these thermal imaging cameras were being shipped from the United States to Mexico, Axis allegedly did not keep the required documents and invoices connected to these exports. The EAR requires companies to retain these transaction documents. Axis’ failure to do so, in addition to its thirteen charges of exporting without a required license, resulted in a civil penalty of $700,000 and an order to undergo an external audit of the company’s export controls compliance program. Axis was required to hire an unaffiliated third-party consultant with an expertise in U.S. export control laws to conduct the audit. The order, given June 9, 2017, stated the company would be put on an export denial list unless fine is paid as arranged and audit is completed with results submitted.

Pay the Government on Time…or Pay Even Sooner

Thursday, May 11th, 2017 by Danielle McClellan

By: Danielle McClellan

In September 2015, Streit USA Armoring, LLC entered into a Settlement Agreement with the Bureau of Industry and Security (BIS) that imposed a civil penalty of $1.6 million ($850 million in installment payments and $750,000 suspended). The company violated the regulations after it reexported armored vehicles to Iraq, Nigeria, and the Philippines. Full article available at http://learnexportcompliance.bluekeyblogs.com/2015/10/01/bis-nails-mid-and-high-level-company-officials-but-not-export-administrator-in-addition-to-company/.

During settlement negotiations Streit USA specifically sought for the ability to pay the $850,000 in installment payment of $170,000. Under this plan, the company was required to make all payments on time; it was found that their November 2016 payment was not made in a timely fashion so the Final Order has been amended to move the due date forward for the final two remaining payments. Streit USA will now owe its final payment son May 2017 and September 2017 compared to the original June 2017 and January 2018.

Amended Order: https://efoia.bis.doc.gov/index.php/documents/export-violations/export-violations-2015/1111-e2498/file