Archive for the ‘Violations & Fines’ Category

Former CEO Makes BIS History

2019/02/20

By: Danielle Hatch

Eric Baird, former CEO of Access USA Shipping, has received the largest BIS penalty to ever be imposed on an individual. The Florida-based man has agreed to pay $17 million for willful violations of the Bureau of Industry and Security (BIS) regulations.

Baird plead guilty to 166 counts of administrative violations for misrepresenting values and item descriptions in order to hide exports that would have required a BIS license. Details available at https://www.learnexportcompliance.com/blog/2018/12/23/ceo-pleads-guilty-to-export-violations-and-agrees-to-pay-17-million/ and https://www.learnexportcompliance.com/blog/2017/03/30/florida-company-fined-27-million-for-150-intentional-ear-violations/.

Baird founded Access USA and developed the business model of providing foreign customers with a US address so that they could acquire US origin items for export without alerting US merchants of the item’s ultimate destinations. Over the course of several years Baird instructed employees to falsify shipping documents and had them purchase items for customers using their personal credit cards and have the items shipped to their homes to hide the real recipient of the goods. Baird was “willingly and intentionally” breaking the law. Baird also faces a five-year suspension of his export privileges and it is expected that he will be sentenced to two years of probation during his sentencing.


Experienced Exporter Fined $80K for Failure to Screen

2019/02/20

By: Danielle Hatch

Multiwire Laboratories, Ltd. (Multiwire) of Ithaca, New York has entered into a settlement with the Bureau of Industry and Security (BIS) for two violations of the Export Administration Regulations (EAR). Between 2014 and 2015, on two occasions Multiwire exported Real-Time Back Reflection Laue Camera Detectors and Accessories (designated as EAR 99) to the University of Electronic Science and Technology of China (UESTC). At the time of both exports UESTC was listed on the Entity List, requiring a BIS license for the EAR99 items (valued at $177,156).

The charging statement from BIS says, “Although an experienced exporter, Multiwire did not have an export compliance program in place at any relevant time to screen foreign customers against the BIS Entity List (or other BIS or U.S. Government export controls lists) …”

Multiwire agreed to an $80,000 penalty on a payment schedule ($20,000 a quarter) and they will not lose their export privileges as long as their payments are on time.

This is yet another penalty for inadequate/poor screening by an exporter. Over the last few years several companies have received fines for violations that would not have occurred had there been a better screening system in place within their compliance programs.

BIS Charging Letter: https://efoia.bis.doc.gov/index.php/documents/export-violations/export-violations-2019/1217-e-2584/file


Huawei Indictment Unsealed

2019/02/20

By: Danielle Hatch

Last month a 13-count indictment was unsealed, charging four defendants (all affiliated with Huawei Technologies Co. Ltd. (Huawei)). The indictment names Huawei, two of its subsidiaries, Huawei Device USA Inc. (Huawei USA) and Skycom Tech Co. Ltd. (Skycom) as well as Huawei’s CFO Wanzhou Meng (Meng). Huawei is the world’s largest telecommunications equipment manufacturer with operations around the world with a headquarters in the People’s Republic of China.

These charges are related to an alleged lengthy scheme devised by Huawei over the last 10+ years to deceive global financial institutions and the US government regarding Huawei’s activities in Iran. In 2007 Huawei claimed that it had not violated the US export regulations, or any other laws related to business activities in Iran. At the time these claims were made the company had an unofficial subsidiary in Iran, known as Skycom. Company employees and Meng told banking partners about the relationship between Skycom and Huawei, but explained that Huawei’s interest in Skycom was sold to an unrelated third party in 2007 so there were no issues. It was later found in 2012/2013 that Meng had served on the board of directors for Skycom and that Skycom was in fact run as an unofficial subsidiary of Iran. It was also later discovered that Huawei allegedly went as far as to fabricate a sale of Skycom to an unknown party, but the unknown party was actually controlled by Huawei making Skycom its longstanding Iranian subsidiary long after 2007. One of Huawei’s banking partners cleared over $100 million worth of Skycom-related transactions through the US banking system between 2010 and 2014.

Over the years Huawei and its principals lied to US government authorities about the relationship between Huawei and Skycom in responses to government inquiries. In 2017 when Huawei discovered that it was being investigated by the US government it began making an effort to move witnesses with knowledge about the company’s Iran-based business transactions to the People’s Republic of China in order to stay out of the US government’s jurisdiction. The company also began destroying and concealing evidence of the Iran-related activities that were directly related to transaction involving the US.

In late 2018, Canadian police arrested Meng pursuant to a provisional arrest warrant issued under Canadian law. The United States in now seeking Meng’s extradition.

Huawei and Skycom are charged with:

  • Bank fraud and conspiracy to commit bank fraud
  • Wire fraud and conspiracy to commit wire fraud
  • Conspiracy to defraud the US
  • Conspiracy to violate and substantive violations of the International Emergency Economic Powers Act (IEEPA)
  • Conspiracy to commit money laundering

Huawei and Hwauwei USA are charged with:

  • Conspiracy to obstruct justice related to the Grand Jury investigation

Meng is charged with:

  • Bank fraud
  • Wire fraud
  • Conspiracy to commit bank and wire fraud

This is just an indictment and all charges are only allegations at this point.

Justice Department: https://www.justice.gov/usao-edny/pr/chinese-telecommunications-conglomerate-huawei-and-huawei-cfo-wanzhou-meng-charged#_ftn1


Company Fined $996,080 for Importing False Eyelash Kits

2019/02/20

By: Danielle Hatch

e.l.f Cosmetics, Inc. (ELF) of Oakland, California has reached a settlement with the Office of Foreign Assets Control (OFAC) for $996,080 related to 156 violations of the North Korea Sanctions Regulations. The company imported false eyelash kits from two different suppliers in People’s Republic of China that contained materials sourced by these suppliers from the Democratic People’s Republic of Korea between 2012 and 2017.

The settlement agreement described ELF’s OFAC compliance program as nearly non-existent or in adequate during the time of the violations and “The company’s production review efforts focused on the quality assurance issues pertaining to the production process, raw materials, and end products of the goods it purchased and/imported” as opposed to where the materials were coming from.

ELF voluntarily self-disclosed the violations and OFAC found that the violations themselves were non-egregious.

OFAC found the following to be aggravating factors:

  • The apparent violations may have resulted in U.S.-origin funds coming under the control of the DPRK government, in direct conflict with the program objectives of the NKSR;
  • ELF is a large and commercially sophisticated company that engages in a substantial volume of international trade; and
  • ELF’s OFAC compliance program was either non-existent or inadequate throughout the time period in which the apparent violations occurred and appears not to have exercised sufficient supply chain due diligence while sourcing products from a region that poses a high risk to the effectiveness of the NKSR.

OFAC found the following to be mitigating factors:

  • ELF’s personnel do not appear to have had actual knowledge of the conduct that led to the apparent violations in this investigation;
  • ELF 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 apparent violations;
  • The apparent violations do not appear to constitute a significant part of ELF’s business activities; and
  • ELF cooperated with OFAC by immediately disclosing the apparent violations, signing a tolling agreement, and submitting a complete and satisfactory response to OFAC’s request for additional information.

Settlement: https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20190131_elf.pdf


ITAR and EAR Confusion Turns into Immigration-Related Discrimination

2019/02/20

By: Danielle Hatch

Honda Aircraft Company LLC (Honda Aircraft) has reached a settlement agreement with the Justice Department for refusing to consider or hire certain work-authorized non-US citizens because of their citizenship status between 2015 and 2016. This is a direct violation of the Immigration and Nationality Act’s (INA) anti-discrimination provision and Honda Aircraft has agreed to pay a $44,626 penalty.

Honda Aircraft posted 25 job openings on its website and several other third-party websites and required applicants to have a specific citizenship status to be considered for the vacancies, and in many cases, they restricted the jobs to only those that were US citizens. The company believed that this was a requirement based on their understanding of the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR).

The ITAR does regulate the access of certain sensitive information to US persons (defined as US citizens, US nationals, lawful permanent residents, asylees, and refugees) and the EAR is similar in limiting access of certain controlled items and technology to US persons absent authorization from the Department of Commerce. No where in the ITAR or EAR does it require or authorize a company to only hire US citizens and lawful permanent residents. Employers that limit their hiring to US citizens and/or lawful permanent residents without legal justification may violate the INA’s anti-discrimination provision.

The biggest take away from this case is understanding why the job postings broke the law. Since the job postings required a specific citizenship status as a condition of employment, the law was being broken because a company cannot create a barrier or limit job opportunities based on citizenship. When the posting said only US citizens could be considered for the job, the company was immediately creating a barrier by unlawfully excluding US nationals, asylees, refugees, and, in some cases, lawful permanent residents that would normally be authorized by the ITAR and EAR to have such a job.

Notice: https://www.justice.gov/usao-mdnc/pr/justice-department-settles-immigration-related-discrimination-claim-against-honda


CEO Pleads Guilty to Export Violations and Agrees to Pay $17 Million

2018/12/23

By: Danielle Hatch

Eric Baird, former owner and CEO of Access USA Shipping, LLC d/b/a MyUS.com (Access USA), had his criminal plea accepted by the Bureau of Industry and Security (BIS) on December 12, 2018. BIS imposed a civil penalty of $17 million, with $7 million suspended, along with a 5-year denial of export privileges with one year being suspended. This is historically the largest penalty to be paid to BIS by an individual.

Are you wondering what this guy must have done to get the largest personal penalty? He went out of his way to hide illegal exports from the government…something they really frown upon. Baird founded Access USA and developed the business model of providing foreign customers with a US address so that they could acquire US origin items for export without alerting US merchants of the item’s ultimate destinations. Baird created policies and practices where it was normal for the values and descriptions of items on export documentation to be falsely identified. At one point, laser sights for firearms were described as “tools and hardware,” and rifle scopes were described as “sporting goods” or “tools, hand tools.” Baird even created a personal shopper program where Access USA employees purchased items for foreign customers from a shopping list and presented themselves as the domestic end users. At one point, Baird and Access USA employees were personally paying for the items and being reimbursed later by their foreign customers.

Access USA’s Chief Technology Officer emailed Baird in 2011 saying, “I know we are WILLINGLY AND INTENTIONALLY breaking the law.” In the same email thread Baird said, “if warned by the government,” then the company “can stop ASAP.”

Access USA settled with BIS in 2017 and agreed to a penalty of $27 million with $17 million suspended. You can read an article outlining the charges at: https://www.learnexportcompliance.com/blog/2017/03/30/florida-company-fined-27-million-for-150-intentional-ear-violations/

Department of Justice: https://www.justice.gov/usao-mdfl/pr/former-florida-ceo-pleads-guilty-export-violations-and-agrees-pay-record-17-million


OFAC Dings U.S. Defense Contractor for Sanctions Violations, Inadequate Screening

2018/12/23

By: Thad McBride on December 12, 2018

POSTED IN INTERNATIONAL TRADESANCTIONS (OFAC)

  • Penalties imposed for violations of U.S. sanctions on Russia and Ukraine
  • Violations identified during pre-acquisition due diligence on contractor
  • Denied persons screening was conducted but missed prohibited parties

In late November 2018, the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) announced that Cobham Holdings, Inc. agreed to pay $87,507 to settle violations of U.S. sanctions on Ukraine and Russia.

Violations Identified During Pre-acquisition Due Diligence

According to OFAC, the violations were committed by Cobham’s former subsidiary, Metelics, prior to the sale of Metelics to MACOM. It was MACOM that identified the violations during due diligence related to its acquisition of Metelics. And it was presumably MACOM that required Cobham to make the voluntary disclosure to OFAC that led to the penalty in this matter.

The penalty is small by recent OFAC standards. (For example, it is about 620 times less than Societe Generale paid to OFAC as part of its global settlement of sanctions violations.)

But as a cautionary tale, the Cobham matter is important to any exporter.

Products Sold to Entity Blocked Under U.S. Sanctions

According to OFAC, during a six-month period in 2014 and 2015, Metelics sold products through distributors in Canada and Russia to a blocked entity under U.S. sanctions. That entity – Almaz Antey Telecommunications LLC (AAT) – was not explicitly named as a blocked party on the OFAC List of Specially Designated Nationals and Blocked Persons (the SDN List).

Yet AAT was nonetheless a blocked person because it was 51 percent-owned by a party – JSC Almaz-Antey – that was named on the SDN List. As OFAC has made abundantly clear, any entity that is owned 50 percent or more by one or more blocked persons is a blocked entity itself.

Any blocked person, whether named on the SDN List or not, is effectively off limits to U.S. companies and individuals.

Screening Challenges Lead to Violations

The chronology of this matter demonstrates the challenges exporters face when screening third party business parties.

According to OFAC, on June 18, 2014, Metelics agreed to sell products to AAT through a Canadian distributor. On June 19, Metelics screened AAT against its prohibited parties screening software. At that time, JSC Almaz-Antey was not a prohibited party – and thus neither was AAT.

On June 27, Metelics shipped products to AAT. In connection with that shipment, Metelics again conducted denied parties screening and identified no match for AAT.

None of this is surprising or problematic from OFAC’s standpoint because JSC Almaz-Antey was not designated as an SDN until July 16, 2014. That is when things get more interesting.

On July 31, 2014, Metelics made another shipment to AAT. In connection with this shipment, Metelics again conducted denied parties screening for AAT and again did not identify any matches – even though JSC Almaz-Antey, the majority owner of AAT, was now named on the SDN List.

Based on this, OFAC deemed the screening effort to be insufficient. OFAC emphasized that Metelics proceeded with shipment to AAT “despite the inclusion of two uncommon terms [‘Almaz’ and ‘Antey’] in the names of both the SDN and [AAT].” OFAC’s statement suggests that the screening software should have identified at least a potential match, which Metelics would presumably have reviewed further before continuing with the transaction.

Notably, there is no indication that Metelics somehow set the software or screening mechanism to avoid identifying a match with AAT. In fact, in its press release, OFAC states that the screening software was set-up to identify “fuzzy” search criteria yet missed the similarities between AAT and JSC Almaz-Antey.

It thus appears that Metelic was not entirely to blame for these apparent violations. Yet in explaining the penalty in this case, OFAC also notes that Metelics “was subject to a consent agreement for violations of the International Traffic in Arms Regulations [ITAR]… resulting from recurring compliance failures.” Arguably those ITAR compliance failures should have made Metelics particularly vigilant about protecting against failures with its screening system.

While OFAC does not name the provider of the screening software in this case, the agency does state that “[p]ersons employing sanctions screening software should take steps to ensure it is sufficiently robust.” In other words, simply because a company uses software to conduct screening does not mean that software is adequate to protect against violations.

Analysis

This may be a tough lesson for exporters to absorb.  It’s not clear that many exporters conduct quality control checks of their screening software. The raison d’etre for such software is to identify actual or potentially prohibited parties based on name similarities. That is exactly what Metelics expected its software to do.

The proliferation of prohibited and restricted parties – and the lists of such parties – makes it impossible for most companies to keep up-to-date with those lists on their own. That’s the reason so many companies seek software solutions to help meet their compliance obligations. It is the responsible thing to do.

Which makes it a little jarring to read the following exhortation from OFAC:

It is essential that companies engaging in international transactions maintain a culture of compliance where front line staff are encouraged to follow up on sanctions issues, including by promptly reporting to compliance personnel transactions suspected to involve sanctioned parties.

That is surely good advice but it is not clear how it pertains to the facts in the Cobham matter. There is no indication that any Metelics employee was aware of a transaction suspected to involve sanctioned parties – or that any employee ducked their head in the sand.

Nevertheless, it is useful to remember the value of periodic risk assessments during which compliance policies, procedures, and processes are reviewed. Potential weaknesses can be identified and addressed before they lead to violations.

The Bass, Berry & Sims trade lawyers work closely with clients to assist in risk assessments and other compliance exercises. Our targeted, efficient approach to such matters leads to practical, effective solutions. Feel free to contact us anytime if we can assist you.

Article: https://www.bassberrygovcontrade.com/ofac-dings-u-s-defense-contractor-for-sanctions-violations-inadequate-screening/


BIS Denies Export Privileges and OFAC Announces $2,774,972 Settlement with Jereh Group

2018/12/23

By: Danielle Hatch

The Bureau of Industry and Security (BIS) announced a settlement with Yantai Jereh Oilfield Services Group Co., Ltd., of Yantai Shandong Province, China (“Yantai Jereh”) in conjunction with the Office of Foreign Assets Control (OFAC).

BIS alleges that the company committed four violations of the EAR (Acting with knowledge of a violation and making false statements to BIS during the course of an investigation. Yantai Jereh has agreed to pay $600,000 to BIS and the company’s 5-year denial period will be suspended if the company pays the BIS fine, in addition to the penalty under their OFAC Settlement Agreement (details below). If at any time, the company commits any violations of the Regulations or fails to pay its penalties on time, BIS can revoke the denial suspension.

The settlement between the OFAC and Yantai Jereh is concurrent with the BIS settlement. The main difference is that the company had 11 violations of the Iranian Transactions and Sanctions Regulations causing a much larger fine of $2,774,972. All 11 violations involved exportation or rexxeportation or the attempted exportation or reexportation of US goods to Iran by way of China. Two of the 11 shipments of oilfield equipment spare parts (coiled tubing strings and pump sets) were seized by US Customs and Border Protection before they left the US.

OFAC determined that the violations constituted an egregious case and the company did not voluntarily disclose their violations.

BIS Charging Letter: https://efoia.bis.doc.gov/index.php/documents/export-violations/export-violations-2018/1206-e2573/file

OFAC Settlement: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20181212.aspx


JPMorgan OFAC Sanctions Violations: Why Proactive Due Diligence Matters

2018/11/26

Written by Staff Restricted Party Screening Specialist

On October 5, 2018, JPMorgan Chase Bank (JPMC) reached a $5.26M settlement with the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) for apparent OFAC violations dating between January 2008 and February 2012.

Included in the announcement was notification of separate OFAC violations related to the Foreign Narcotics Kingpin and Syrian Sanctions Regulations that took place between August 2011 and April 2014.

Details about the earlier violations suggest that there were gaps in JPMC’s reporting and escalation processes (and that despite red flags, staff members allowed transactions to proceed). What’s noteworthy about second case, however, is not that JPMC staff allowed 85 prohibited transactions from six customers (and Specially Designated Nationals) to occur. Rather, it was the following:

  1. That the institution’s screening system failed to “identify customer names with hyphens, initials, or additional middle or last names as potential matches to similar or identical names on the SDN List,” and
  2. That JPMC employees did not further vet results despite similarities in name, addresses and dates of birth.

On the positive side, JPMorgan Chase self-identified the weakness in its screening tool and took remedial actions to correct—ultimately moving to a new screening system in 2013. Once implemented, they rescreened close to 200 million customer records, discovered the transactions in question, and ultimately reported the violations to OFAC.

DUE DILIGENCE WHEN IT COMES TO RISK IS WORTH IT

For an organization the size of JPMorgan Chase, a $5M financial settlement probably isn’t going to break the bank (no pun intended!). But the same may not be true for businesses without a similar bottom line to fall back on.

The later violation could have been avoided altogether if JPMC had set procedures in place—a match resolution workflow, for example. And some education that staff had a responsibility to take extra steps to further vet information in the event one or more search terms came back positive.

Despite the screening tool lacking the ability to recognize hyphens, initials, and additional middle or last names—though a good restricted and denied party screening solution should be able to account for this information—there was still enough readily-available data (e.g., matching dates of birth, etc.) that, upon review, would have indicated that the six account holders, and those on OFAC’s Specially Designated Nationals and Blocked Persons (SDN) List, were potentially one and the same.

ONE SENTENCE LESSON

Screening everyone and every transaction isn’t enough to be compliant with OFAC and other U.S. export, trade and financial compliance laws—positive matches should always be fully vetted and cleared before a transaction can take place, ideally in an environment with set procedures and systems in place.

Full Article: https://www.ecustoms.com/blog/?p=1626&p=1626


Texas Man Sentenced to 6 years in Prison for Cuba Embargo Violations

2018/10/30

By: Danielle Hatch

Bryan Evan Singer, 46, of Bryan Texas was sentenced to 6.5 years in prison on September 27, 2018 for attempting to export electronic devices to Cuba. On May 2, 2017 Singer was traveling from Stock Island, Florida to Havana, Cuba via his boat “La Mala” when law enforcement stopped him to conduct an outbound inspection of the boat. During the inspection, Singer explained that he was only taking items to Cuba that were on the deck of his boat and that the value of the items was less than $2,500 (possibly suspicious or a red flag). Law enforcement continued to search the boat and found a hidden compartment under a bolted down bed in the cabin where they discovered over $30,000 worth of electronic devices. Of those devices, there were 300 Ubiquiti Nanostation Network devices which allow for highly encrypted connections between computer networks over long distances, making a license required to export them to Cuba.

Singer did not apply for a license for the items…in case you didn’t already guess that.

Justice: https://www.justice.gov/usao-sdfl/pr/texas-resident-sentenced-south-florida-more-6-years-prison-violations-cuban-embargo