Archive for the ‘Violations & Fines’ Category

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.

Illegal Exporting of IED Components Lands Singapore Native in Prison

Thursday, June 8th, 2017 by Danielle McClellan

By: Ashleigh Foor

Illegal exporting of goods lands Singapore native, Lim Yong Nam (aka Steven Lim), 43, in a lot of trouble. Forty months in prison kind of trouble to be exact. On December 15, 2016 Lim plead guilty to charges of conspiracy to defraud the US.

The conspiracy involved Lim’s and others’ involvement in the shipment of thousands of radio frequency modules from a Minnesota-based company to Iran.  The frequency transmitting technology used in these modules is related to that which connects office computers and printers wirelessly. The same technology is also used for remote detonation systems. Connected with the right antenna, the wireless capabilities can stretch 40 miles. But this technology was not shipped with the intention of setting up networks in an office building. Of the 6,000 modules shipped from Minnesota to Iran, 14 were later found in Iraq in unexploded improvised explosive devices (IEDs). According to case files, IEDs were the main source of American casualties in Iraq from 2001-2007.

Charges were first filed against Lim in June 2010, when he plead guilty to falsifying documents and breaking US law in order for 6,000 modules to ship from Minnesota to Singapore and finally to Iran through 5 shipments.  Lim admitted that he and his co-conspirators were aware of US restrictions on shipments to Iran and made false statements to indicate Singapore as the final destination.

After reaching Singapore, these shipments were combined with other electronic devices and stored with a freight forwarding company before being re-exported to Iran. There is no evidence of Lim having any physical contact with the modules.

From 2008 to 2009 several of these modules originating from Minnesota were found in Iraq being used for the remote detonation system for IEDs. With US request for extradition, Indonesia detained Lim in 2014. After being extradited to the US in 2016, Lim plead guilty to charges of conspiracy against the US and will be deported after his sentence.

Interestingly, the Minnesota supplier has not been charged for any violations related to the exports in question.

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

Chinese National Pleads Guilty to Attempting to Export “Bananas”

Thursday, May 11th, 2017 by Danielle McClellan

By: Danielle McClellan

For the past 6 years, 53 year old Fuyi Sun has attempted to purchase carbon fiber for the Chinese military (according to court records). A few years ago Sun contacted what he thought was a US company that distributed carbon fiber, but was, in fact, an undercover entity created by Homeland Security Investigations (HSI) and staffed by undercover agents. The company, “UC Company,” was asked by Sun to supply M60 Carbon Fiber which is a high-grade carbon fiber that is used in sophisticated aerospace and defense applications, specifically for drones and other government defense applications. M60 Carbon Fiber requires a license for export to China for nuclear non-proliferation and anti-terrorism reasons.

During the course of the relationship between UC Company and Sun, he often suggested various security measures they should take to make sure they would both remain protected from the “U.S. Intelligence.” He instructed the undercover agents to use the word “banana” instead of “carbon fiber” in all communications…he inquired about purchasing 450 kilograms of banana in one email. He also instructed agents to remove identifying barcodes for the carbon fiber, prior to transshipment,  and instructed them to identify it as “acrylic fiber” in customs documentation.

On April 11, 2016, Sun traveled from China to New York to purchase the M60 Carbon Fiber from UC Company. On April 11th and 12th Sun met with undercover agents and suggested to them that the Chinese military was the ultimate end-user for the carbon fiber, he also explained that he personally worked in the Chinese missile program. He further asserted that he had a close relationship with the Chinese military, and would be supplying the M60 Carbon Fiber to the Chinese military or to institutions closely associated with it. He agreed to purchase two cases of the carbon fiber on the 12th from UC Company and provided them with $23,000 in cash for the carbon fiber and then provided an additional $2,000 as compensation for the risk that he believed they were taking to illegally export the carbon fiber to China without a license. Sun was arrested the next day.

Sun pled guilty to attempting to violate the International Emergency Economic Powers Act (IEEPA), which carries a maximum sentence of 20 years in prison. The maximum sentence in this case will be prescribed by Congress. Sun will be sentenced on July 26, 2017.

Details: https://www.justice.gov/opa/pr/chinese-national-pleads-guilty-attempting-illegally-export-high-grade-carbon-fiber-china

Company Fined $162K for Antiboycott Violations

Thursday, March 30th, 2017 by Danielle McClellan

By: Danielle McClellan

The Office of Antiboycott Compliance, Bureau of Industry and Security (BIS) has charged Pelco Inc. (Pelco) with 66 violations. Between May 2011 and January 2016 it was found that on 32 occasions Pelco was engaged in transactions involving the sale/transfer of goods and services from the US to the United Arab Emirates and Kuwait, activities in the interstate or foreign commerce of the US (Section 760.1(d)). In connection with these transactions, Pelco, with intent to comply with, further supported an unsanctioned foreign boycott by agreeing to refuse to do business with another person (prohibited by Section 760.2(a)).

In addition to those 32 charges, Pelco was charged with 34 violations of “Failing to Report the Receipt of a Request to Engage in a Restrictive Trade Practice or Foreign Boycott Against a Country Friendly to the US” (Section 760.5). This is not surprising, a company who agrees to an illegal boycott is not likely to report said boycott.

Pelco will pay $162K to settle the violations and will not be debarred as long as the settlement amount it paid.

Charging Letter: https://efoia.bis.doc.gov/index.php/documents/antiboycott/alleged-antiboycott-violations-2015/1100-a749/file

Florida Company Fined $27 Million for 150 Intentional EAR Violations

Thursday, March 30th, 2017 by Danielle McClellan

By: Danielle McClellan

Access USA Shipping, LLC (Access) of Sarasota, Florida was charged with 150 violations beginning in April 2011 and spanning to February 2013. The company went out of its way to conceal the fact that foreign customers were purchasing products through them without their US merchants knowing who the end users of their items were. Access mis-described, undervalued, and destroyed and/or altered export control documents to conceal the illegal exports. They also made sure that their foreign customers had a direct employee to order through to avoid any export scrutiny. They went as far as allowing foreign customers to send “wish lists” to Access employees who would then purchase the products from their US merchants with US credit cards and PayPal accounts in the name of Eric Baird, Access’s founder and then-owner and CEO or cards opened in the name of the employee making the order. The foreign customer would then reimburse Access or the employee; there were even situations when the shipments were delivered to the homes of Access employees to ensure that the US merchants would not become suspicious of the order and the end user.

Access also exported (or attempted to) items classified as ECCN 0A987 which are controlled for Crime Control reasons to Argentina, Austria, Hong Kong, Indonesia, Libya, South Africa, and Sweden without a BIS export license. It was also found that the company exported (or attempted to) items classified as ECCN 5A990 and controlled for anti-terrorism reasons as well as EAR99 items to Transsphere Oy, a company on the Entity List.

The company is ordered to pay $10 million right away and the other $17 million will be suspended for two years and waived if the company does not commit any violations during the two year probationary period.

Charging Letter: https://efoia.bis.doc.gov/index.php/documents/export-violations/export-violations-2015/1102-e2490/file

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

Justice Publishes Summary of Major U.S. Export Enforcement, Economic Espionage, Trade Secret, and Embargo-Related Criminal Cases

Thursday, March 30th, 2017 by Danielle McClellan

(Source: Justice)

The U.S. Department of Justice (DoJ) has published its Summary of Major U.S. Export Enforcement, Economic Espionage, Trade Secret, and Embargo-Related Criminal Cases, (January 2014 to the present: updated February 17, 2017), available at here.

The list contains a brief description of some of the major export enforcement, economic espionage, theft of trade secrets, and embargo-related criminal prosecutions by the Justice Department since January 2014. These cases resulted from investigations by the Homeland Security Investigations (HSI) [formerly Immigration and Customs Enforcement (ICE)], the Federal Bureau of Investigation (FBI), the Department of Commerce’s Bureau of Industry and Security (BIS), the Pentagon’s Defense Criminal Investigative Service (DCIS), and other law enforcement agencies.

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: