Archive for the ‘Denied & Restricted Parties’ Category

U.S. Slaps Export Controls on Dozens of Chinese Firms Over ‘Threat To National Security’ As Trade Tensions Escalate

2018/08/30

(Source: South China Morning Post, 2 Aug 2018.) [Excerpts.]

Trade tensions continue to rise between the world’s two largest economies as the US added dozens of export control restrictions to Chinese companies and added 44 Chinese entities to its export control list for posing “significant risk” to US national security or foreign policy interests. These controls will limit access to products that the US commerce department believes could have dual military or civilian use and may deny companies key components such as nuclear materials, telecoms equipment, lasers, and sensors.

The new restrictions impact key parts to China’s Made in China 2025 policy including air defense systems, satellite communications systems, semiconductors, and aerospace products. The Made in China 2025 policy was created to further China’s initiatives to become a hi-tech powerhouse, but the US views it as a threat to its global technological supremacy.

After announcing the latest US moves, US trade representative Robert Lighthizer said that Washington needs to “take strong defensive actions to protect America’s leadership in technology and innovation” and added: “China’s government is aggressively working to undermine America’s hi-tech industries and our economic leadership through unfair trade practices and industrial policies like Made in China 2025.”

Source: https://www.scmp.com/news/china/diplomacy-defence/article/2157932/us-slaps-export-controls-dozens-chinese-firms-over

 


Company Fined $155,000 for Screening Related Violations

2018/08/30

By: Danielle Hatch

Mohawk Global Logistics Corp. has been fined $155,000 for 3 violations of the Export Administration Regulations (EAR) related to exporting to companies on the Entity List.

Around August 2012 Mowhawk exported an LNP-20 Liquid Nitrogen Plant (EAR99 and valued at $33,587) to the All-Russian Scientific Research Institute of Experimental Physics (VNIIEF). The company had a screening process in place and when they screened VNIIEF they got a hit and the shipment was initially flagged. During the BIS investigation Mowhawk acknowledged that the export supervisor accidently overrode (or ignored) the red flag and the shipment was processed. Mowhawk filed EEI and listed the shipment as No License Required (NLR) which would have been accurate had the end user not been on the Entity List. Since VNIIEF is a denied party a license is always required to export any items subject to the EAR. This was the 1st of 3 total charges.

In February 2014 and August 2015, Mokhawk once again exported to an organization on the Entity List, but this time they were in China. The company exported Real-Time Back Reflection Laue Camera Detectors and Accessories (EAR99 and valued at $177,156) to the University of Electronic Science and Technology of China (UESTC). Once again, Mowhawk used screening software, but this time it failed to flag the transaction because Mowhawk didn’t screen UESTC’s full, unabbreviated name. This could be a common mistake, however, all of the documents that UESTC provided to Mowhawk clearly identified UESTC’s full name as it was listed on the Entity List along with an almost exact matching address. The shipment was processed in February 2014 and they filed EEI as NLR. As with the first charge, had the export not gone to someone on the Entity List a license likely would not have been required.

In August 2015 Mowhawk exported the same exact items to UESTC after they had been returned for warranty repair. This time, Mowhawk didn’t screen the transaction at all using their screening software and there was no EEI filed in connection with this particular export to UESTC. These transactions were charges 2 and 3.

Settlement Agreement:

  • Pay $135,000 in 3 separate payments
  • Payment of the remaining $20,000 is suspended as long as the company pays the $135,000 on time.
  • If payments are not received on time, BIS may issue an order denying all of Mowhawk’s export privileges
  • Mowhawk can’t take any action or make any public statement denying the allegations in the BIS Charging Letter or Order

Order and Charging Letter: https://efoia.bis.doc.gov/index.php/documents/export-violations/export-violations-2018/1193-e2561/file


Chinese National Arrested for Conspiring to Illegally Export U.S. Origin Goods Used in Anti-Submarine Warfare to China

2018/07/30

(Source: Justice, 21 Jun 2018.) [Excerpts.]

Defendant allegedly illegally exported devices used to detect and monitor sound underwater.

Shuren Qin, 41, a Chinese national residing in Wellesley, Mass., was arrested and charged in connection with violating export laws. Qin was born in the People’s Republic of China and became a lawful permanent resident of the United States in 2014, according to charging documents. Qin runs several companies in China, which import U.S. and European goods used in underwater or marine technologies into China. Below lists his violations and findings from court documents:

  • Charged with violating export laws by conspiring with employees affiliated with the People’s Liberation Army (PLA) to illegally export U.S. origin goods to China.
  • Also charged with making false statements to acquire a visa to enter the United States and become a lawful permanent resident under the EB-5 Immigrant Investor Visa Program.
  • It is alleged that Qin was in communication with and/or receiving taskings from entities affiliated with the PLA, including the Northwestern Polytechnical University (NWPU), a Chinese military research institute, to obtain items used for anti-submarine warfare.
  • From at least July 2015 to December 2016, Qin allegedly exported approximately 78 hydrophones (devices used to detect and monitor sound underwater) from the United States to NWPU without obtaining the required export licenses from the Department of Commerce.
  • Qin concealed from the U.S. supplier that NWPU was the end-user and created false information to be filed with the United States Government.
  • Qin made false statements on his visa application stating that he had never “engaged in export control violations or other unlawful activity.” However, it is alleged that Qin engaged in many violations of U.S. export laws since 2012.
  • In an interview with Customs and Board Patrol Officers in November 2017, Qin stated that he “only” exported instruments that attach to a buoy. However, Qin had allegedly exported remotely-operated side scan sonar systems, unmanned underwater vehicles, unmanned surface vehicles, robotic boats, and hydrophones. These items have military applications and can be used for weapon delivery systems, anti-submarine warfare, mine counter-measures as well as intelligence, surveillance and reconnaissance activities.

The charge of conspiring to violate U.S. export laws results in a sentence of no greater than 20 years in prison, three years of supervised release, and a fine of $1 million. The charge of visa fraud results in a sentence of no greater than 10 years in prison, three years of supervised release, and a fine of $250,000. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.

The details contained in the indictment are allegations. The defendant is presumed to be innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

Details: https://www.justice.gov/usao-ma/pr/chinese-national-arrested-conspiring-illegally-export-us-origin-goods-used-anti-submarine


BIS Issues an Order Terminating the Denial Order Against ZTE

2018/07/30

(Source: Commerce/BIS, 13 Jul 2018.)

On March 23, 2017, Zhongxing Telecommunications Equipment Corporation of Shenzhen, China, and ZTE Kangxun Telecommunications Ltd. of Hi-New Shenzhen, China (collectively, “ZTE”) entered into a settlement agreement with the Bureau of Industry and Security, U.S. Department of Commerce (BIS) to resolve 380 violations of the Export Administration Regulations (EAR) admitted by ZTE.

ZTE has followed the settlement terms and conditions by making a full and timely payment of $1,000,000,000 as ordered and has complied with the escrow requirements relating to the $400,000,000 suspended portion of the civil penalty. Therefore, BIS has terminated the 15 April 2018 Order, and BIS will remove ZTE from the Denied Persons List.

This order does not modify any provision of the Superseding Order or the Superseding Settlement Agreement.

[Note: The 15 April 2018 Order is available here.]

Details: https://efoia.bis.doc.gov/index.php/documents/export-violations/export-violations-2018/1184-e2559/file


The Fall and Rise of ZTE

2018/05/30

By: Danielle Hatch

In early 2017 China’s largest telecommunications company agreed to pay a nearly $900 million penalty to the US after entering a guilty plea for illegally shipping goods to Iran and North Korea. ZTE was charged with 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. The company also entered into a settlement with OFAC for violating the Iranian Transactions and Sanctions Regulations (“ITSR”; 31 CFR Part 560). More Information on these charges can be found here.

A March 2017 Order suspended the 7-year denial of ZTE’s export privileges as well as $300 million of the nearly $900 million penalty if ZTE complied with several probationary conditions. The conditions required ZTE, among other things, to submit six audit reports related to their compliance with US export regulations as well as truthful disclosures of any requested information (Section 764.2(g) of the EAR).

One of the many requirements of The Settlement Agreement and March 2017 Order was that ZTE provide BIS with a status report on specific employees related to the violations found during the investigation or identified in two letters (sent November 30, 2016 and July 20, 2017) that ZTE sent to employees regarding the violations. During BIS’s investigation there were 9 specific employees named related to violations, later, ZTE would identify a total of 39 employees who would have action taken against them related to the violations.

ZTE’s November letter to employees was sent while BIS was investigating the company’s violations and ZTE explained that they had self-initiated employee disciplinary actions that it had begun to take as well as additional actions that they would take in the future that would, be “necessary to achieve the Company’s goals of disciplining those involved and sending a strong message to ZTE employees about the Company’s commitment to compliance.”

ZTE’s July letter was similar to the November letter and once again asserted the company’s commitment to compliance and claimed that the disciplinary actions had sent a strong message to ZTE employees. The letter “confirmed that the measures detailed by ZTE with respect to discipline have been implemented” specifically to the nine named employees identified during the investigation. It should be noted that the individuals that were identified by enforcement agents were those that were signatories on an internal ZTE memorandum on how to evade US export controls or were identified on that memorandum as a “project core member” and/or had met with ZTE’s then CEO to discuss means to continue to evade US laws. In a nutshell, BIS wanted to see that ZTE had reprimanded the 39 employees and officials that were related to the violations through the two letters that they sent.

Cue the problem, which ultimately caused BIS to propose activation of suspended sanctions. ZTE didn’t really send those letters of reprimand as timely as they had led BIS to believe. Come to find out, the November 30, 2016 letter wasn’t sent to employees until February 2, 2018. Not to mention, all but one of the identified individuals received their full 2016 bonus, ZTE originally said this compensation would either be cancelled or decreased.

On March 6, 2018, ZTE indicated, via outside counsel that it had made false statements in the November and July letters. On March 13, 2018 BIS notified ZTE of a proposed activation of the sanctions conditionally-suspended under the Settlement Agreement and the March 2017 Order based on the company breaking the cooperation provision related to providing the US government with false statements. The notice letter to ZTE gave the company an opportunity to respond, of which they provided the following (found in FR 17646):

“In its letter, ZTE confirmed the false statements and, as discussed further infra, posed certain questions in rhetorical fashion. ZTE then proceeded to summarize its response upon ‘‘discovering’’ the failure to implement the stated employee disciplinary actions prior to March 2018, including its decision to notify BIS of the failures. The company also described the asserted remedial steps it had taken to date, including the issuance in March 2018, of the letters of reprimand that were to have been sent in 2016–2017. ZTE additionally asserted that, for current employees whose 2016 bonus should have been reduced (by 30% to 50%), it would deduct the corresponding amount from their 2017 annual bonuses ‘‘to the extent permitted under Chinese law.’’ ZTE also said it will pursue recovery from (certain) former employees of bonus payments for 2016 that the company had informed the U.S. Government would be reduced, but, contrary to those statements, were paid in full. Finally, ZTE reiterated what it described as the company’s serious commitment to export control compliance and summarized its plan to continue its internal investigation of the matter.”

Ultimately, the US Government found that this was the last straw for ZTE. They released the following statement and activated the suspended denial order in full and to suspend the export privileges for ZTE for a period of seven years (until March 13, 2025).

“In issuing the March 13, 2018 notice letter to ZTE, and in considering ZTE’s response, I have taken into account the course of ZTE’s dealings with the U.S. Government during BIS’s multi-year investigation, which demonstrate a pattern of deception, false statements, and repeated violations. I note the multiple false and misleading statements made to the U.S. Government during its investigation of ZTE’s violations of the Regulations, and the behavior and actions of ZTE since then. ZTE’s July 20, 2017 letter is brimming with false statements in violation of § 764.2(g) of the Regulations and is the latest in a pattern of the company making untruthful statements to the U.S. Government and only admitting to its culpability when compelled by circumstances to do so. That pattern can be seen in the November 30, 2016 letter, which falsely documented steps the company said it was taking and had taken, as well as in the 96 admitted evasion violations described in the PCL, which detailed the company’s efforts to destroy evidence of its continued export control violations.”

Here’s where the story gets interesting…

On May 13, 2018 President Donald Trump pledged in a tweet to help give ZTE “a way back into business, fast,” “Too many jobs in China lost. Commerce Department has been instructed to get it done!” Trump tweeted, adding that he was working with Chinese President Xi Jinping to help the company resume operations.

A day later, amid criticism over why Chinese jobs were a priority during trade and investment negotiations with China, Trump tweeted: “ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi.”

Just last week it was released that a deal was in the works between Commerce and China that would involve China buying more US farm goods and removing tariffs on imported US agricultural products in exchange for the denial order against ZTE to be reconsidered. ZTE would still face “harsh” punishment, including enforced changes of management and changes at the board level.

Rumors are swirling that there was a “handshake deal” on ZTE between U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He during talks in Washington last week that would remove the ban in exchange for the purchase of more US agricultural products. Another person said China may eliminate tariffs on US agriculture products it assessed in response to US steel duties, and that ZTE could still be forced to replace its leadership, among other penalties. Both sources said the deal, which has not been confirmed, will likely be finalized before or during a planned trip by US Commerce Secretary Wilbur Ross to Beijing next week to help reach a broader trade pact to avert a trade war.

Additional Details:

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2018-04-23/pdf/2018-08354.pdf

Article: https://www.reuters.com/article/usa-china-zte-talks/update-1-u-s-china-nearing-deal-to-remove-u-s-sales-ban-against-zte-sources-idUSL3N1ST1WX

Article: https://www.reuters.com/article/us-zte-ban/chinas-zte-says-main-business-operations-cease-due-to-u-s-ban-idUSKBN1IA1XF


Repeal of Pratt & Whitney Canada Corporation’s Statutory Debarment

2017/10/16

By: Ashleigh Foor

As of July 12, 2017, the statutory debarment of Pratt & Whitney Canada Corporation has been lifted and the company reinstated, according to the Department’s authorities under the Arms Export Control Act and the International Traffic in Arms Regulations.

In June 2012, Pratt & Whitney Canada Corporation plead guilty to violating the AECA (US District Court, District of Connecticut, 12-CR-146-WWE), making the company statutorily debarred in accordance with section 120.1 of the ITAR with certain exceptions, pursuant to section 127.7(b). Section 38(g)(4) of the AECA, 22 U.S.C. 2778(g)(4) prohibits any party that has violated the AECA from issuing export licenses or other approvals for the export of defense articles or services. The notice debarring Pratt & Whitney Canada Corporation in all its locations was published in the Federal Register July 6, 2012.

According to section 127.7 of the ITAR, a statutory debarment may be repealed once appropriate US agencies concur that the violating company has taken appropriate steps to alleviate any law enforcement concerns. The Department of State consulted with other US agencies and concluded that Pratt & Whitney Canada Corporation has appropriately addressed the causes of violations and mitigated any law enforcement concerns.

Effective July 12, 2017, the statutory debarment is removed and Pratt & Whitney Canada Corporation may now participate in any activities subject to the ITAR , in accordance with section 38(g)(4) of the AECA and sections 127.7(b) and 127.11(b) of the ITAR.


OFAC: Specially Designated Nationals List Update

2017/08/03

The following individuals have been added to OFAC’s SDN List (Venezuela-related Designations):

ALBISINNI SERRANO, Rocco, Miranda, Guarico, Venezuela; DOB 06 Mar 1982; Gender Male; Cedula No. 15481927 (Venezuela); President of Venezuela’s National Center for Foreign Commerce (CENCOEX); Former Vice Minister of the State and Socialist Economy of Venezuela’s Ministry of Economy and Finance; Current or Former Principal Director of Venezuela’s National Development Fund (FONDEN) (individual) [VENEZUELA].

FLEMING CABRERA, Alejandro Antonio, Caracas, Capital District, Venezuela; DOB 03 Oct 1973; Gender Male; Cedula No. 11953485 (Venezuela); Vice Minister for Europe of Venezuela’s Ministry of Foreign Affairs; Former Vice Minister for North America of Venezuela’s Ministry of Foreign Affairs; Former President of Venezuela’s National Center for Foreign Commerce (CENCOEX); Former President for Suministros Venezolanos Industriales, C.A. (SUVINCA) of Venezuela’s Ministry of Commerce; Former Ambassador of Venezuela to Luxembourg and Chief Ambassador of the Venezuelan Mission to the European Union (individual) [VENEZUELA].

GARCIA DUQUE, Franklin Horacio (Latin: GARCÍA DUQUE, Franklin Horacio), Miranda, Venezuela; DOB 19 Aug 1963; citizen Venezuela; Gender Male; Cedula No. 9125430 (Venezuela); Former National Director of Venezuela’s Bolivarian National Police; Former Commander of the West Integral Strategic Defense Region of Venezuela’s National Armed Forces (individual) [VENEZUELA].

JAUA MILANO, Elias Jose (Latin: JAUA MILANO, Elías José), Miranda, Venezuela; DOB 16 Dec 1969; POB Caucagua, Miranda, Venezuela; citizen Venezuela; Gender Male; Cedula No. 10096662 (Venezuela); Head of Venezuela’s Presidential Commission for the Constituent Assembly; Venezuela’s Minister of Education; Venezuela’s Sectoral Vice President of Social Development and the Revolution of Missions; Former Executive Vice President of Venezuela (individual) [VENEZUELA].

LUCENA RAMIREZ, Tibisay (Latin: LUCENA RAMÍREZ, Tibisay), El Recreo, Libertador, Capital District, Venezuela; DOB 26 Apr 1959; POB Barquisimeto, Lara, Venezuela; citizen Venezuela; Gender Female; Cedula No. 5224732 (Venezuela); Passport 3802006 (Venezuela); President of Venezuela’s National Electoral Council; President of Venezuela’s National Board of Elections (individual) [VENEZUELA].

MALPICA FLORES, Carlos Erik, Naguanagua, Carabobo, Venezuela; DOB 17 Sep 1972; Gender Male; Cedula No. 11810943; Former National Treasurer of Venezuela; Former Vice President of Finance for Petroleos de Venezuela, S.A. (PDVSA); Former Presidential Commissioner for Economic and Financial Affairs (individual) [VENEZUELA].

PEREZ AMPUEDA, Carlos Alfredo (Latin: PÉREZ AMPUEDA, Carlos Alfredo), Caracas, Capital District, Venezuela; DOB 13 Dec 1966; citizen Venezuela; Gender Male; Cedula No. 9871452 (Venezuela); National Director of Venezuela’s Bolivarian National Police; Former Commander of Carabobo Zone for Venezuela’s Bolivarian National Guard (individual) [VENEZUELA].

REVEROL TORRES, Nestor Luis (Latin: REVEROL TORRES, Néstor Luis), Zulia, Venezuela; El Valle, Libertador, Caracas, Capital District, Venezuela; DOB 28 Oct 1964; citizen Venezuela; Gender Male; Cedula No. 7844507 (Venezuela); Passport A0186449 (Venezuela); Venezuela’s Minister of Interior, Justice, and Peace; Former Commander General of Venezuela’s Bolivarian National Guard; Former Director of Venezuela’s Anti-Narcotics Agency (individual) [VENEZUELA].

RIVERO MARCANO, Sergio Jose (Latin: RIVERO MARCANO, Sergio José), Caracas, Captial District, Venezuela; DOB 08 Nov 1964; citizen Venezuela; Gender Male; Cedula No. 6893454 (Venezuela); Commander General of Venezuela’s Bolivarian National Guard; Former Commander of the East Integral Strategic Defense Region of Venezuela’s National Armed Forces (individual) [VENEZUELA].

SAAB HALABI, Tarek William, Anzoategui, Venezuela; DOB 10 Sep 1962; citizen Venezuela; Gender Male; Cedula No. 8459301 (Venezuela); Passport 5532000 (Venezuela); Venezuela’s Ombudsman; President of Venezuela’s Republican Moral Council (individual) [VENEZUELA].

SUAREZ CHOURIO, Jesus Rafael (Latin: SUÁREZ CHOURIO, Jesús Rafael), Aragua, Venezuela; Caracas, Venezuela; DOB 19 Jul 1962; citizen Venezuela; Gender Male; Cedula No. 9195336 (Venezuela); General Commander of Venezuela’s Bolivarian Army; Former Commander of Venezuela’s Central Integral Strategic Defense Region of Venezuela’s National Armed Forces; Former Commander of Venezuela’s Aragua Integrated Defense Zone of Venezuela’s National Armed Forces; Former Leader of the Venezuelan President’s Protection and Security Unit (individual) [VENEZUELA].

VARELA RANGEL, Maria Iris (Latin: VARELA RANGEL, María Iris), Caracas, Capital District, Venezuela; DOB 09 Mar 1967; POB San Cristobal, Tachira, Venezuela; citizen Venezuela; Gender Female; Cedula No. 9242760 (Venezuela); Passport 8882000 (Venezuela); Member of Venezuela’s Presidential Commission for the Constituent Assembly; Venezuela’s Former Minister of the Penitentiary Service (individual) [VENEZUELA].

ZERPA DELGADO, Simon Alejandro (Latin: ZERPA DELGADO, Simón Alejandro), Sucre, Miranda, Venezuela; DOB 28 Aug 1983; Gender Male; Cedula No. 16544324 (Venezuela); Vice President of Finance for Petroleos de Venezuela, S.A. (PDVSA) ; President of Venezuela’s Economic and Social Development Bank (BANDES); President of Venezuela’s National Development Fund (FONDEN); Vice Minister of Investment for Development  of Venezuela’s Ministry of Economy and Finance; Principal Director of Venezuela’s Foreign Trade Bank (BANCOEX); Principal Director of Venezuela’s National Telephone Company (CANTV); Current or Former Presidential Commissioner to the Joint Chinese Venezuelan Fund; Current or Former Principal Board Member of Venezuela’s National Electric Corporation (CORPOELEC); Former Executive Secretary of Venezuela’s National Development Fund (FONDEN) (individual) [VENEZUELA].

Details: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20170726.aspx


Beware of Contracts Signed by Specially Designated Nationals

2017/08/03

(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

2017/07/19

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


Rosoboronexport Added to Nonproliferation Act by State

2017/05/11

On March 21, 2017, the Department of State applied the measures authorized in Section 3 of the Iran, North Korea, and Syria Nonproliferation Act against Rosoboronexport (ROE) (Russia) and any successor, sub-unit, or subsidiary thereof. The measures below will remain in place for two years from the effective date unless the Secretary of State determines otherwise.

Rosoboronexport accounts for more than 90% of Russia’s annual arms sales and India is their major client, other leading clients include China, Algeria, Syria, Vietnam, Venezuela and recently Iraq.

Section 3 of the Act, imposes the following measures against Rosoboronexport:

  1. No department or agency of the United States Government may procure or enter into any contract for the procurement of any goods, technology, or services from this foreign person, except to the extent that the Secretary of State otherwise may determine. This measure shall not apply to subcontracts at any tier with ROE and any successor, sub-unit, or subsidiary thereof made on behalf of the United States Government for goods, technology, and services for the maintenance, repair, overhaul, or sustainment of Mi-17 helicopters for the purpose of providing assistance to the security forces of Afghanistan, as well as for the purpose of combating terrorism and violent extremism globally. Moreover, the ban on U.S. government procurement from the Russian entity Rosoboronexport (ROE) and any successor, sub-unit, or subsidiary thereof shall not apply to United States Government procurement of goods, technology, and services for the purchase, maintenance, or sustainment of the Digital Electro Optical Sensor OSDCAM4060 to improve the U.S. ability to monitor and verify Russia’s Open Skies Treaty compliance. Such subcontracts include the purchase of spare parts, supplies, and related services for these purposes;
  2. 2. No department or agency of the United States Government may provide any assistance to this foreign person, and this person shall not be eligible to participate in any assistance program of the United States Government, except to the extent that the Secretary of State otherwise may determine;
  3. No United States Government sales to this foreign person of any item on the United States Munitions List are permitted, and all sales to this person of any defense articles, defense services, or design and construction services under the Arms Export Control Act are terminated; and;
  4. No new individual licenses shall be granted for the transfer to this foreign person of items the export of which is controlled under the Export Administration Act of 1979 or the Export Administration Regulations, and any existing such licenses are suspended.

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2017-03-29/pdf/2017-06224.pdf