Archive for the ‘Violations & Fines’ Category

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


OFAC Reaches $5 Million Settlement with JPMorgan Chase Bank

2018/10/30

By: Danielle Hatch

The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced this month that it had reached a $5,263,171 settlement with JPMorgan Chase Bank, N.A. for 87 violations of the Cuban Assets Control Regulations, the Iranian Transactions and Sanctions Regulations, and the Weapons of Mass Destruction Proliferators Sanctions Regulations.

The transactions were net settlement payments with a very small portion being provided to the interests of airlines that were on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List), blocked pursuant to OFAC sanctions, or located in countries subject to OFAC sanctions. The transactions included airline freight charges which are not exempt from the prohibitions of the International Emergency Economic Powers Act (IEEPA).

On a separate issue, OFAC issued a Finding of Violation to JPMC for violations of the Foreign Narcotics Kingpin Sanctions Regulations and the Syrian Sanctions Regulations. Between 2011 and 2014 JPMC processed 85 transactions worth $46,127.04 held accounts on behalf of six customers who were on the SDN list.

In both situations JPMC voluntarily disclosed the violations and they were considered to be non-egregious violations by OFAC.

Settlement Agreement: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20181005.aspx


Chinese Intelligence Officer Charged with Espionage and Stealing Trade Secrets

2018/10/30

By: Danielle Hatch

Yanjun Xu (aka Qu Hui and aka Zhang Hui), a Chinese Ministry of State Security (MSS) operative, has been arrested and charged with conspiring and attempting to commit economic espionage and stealing trade secrets from several US aviation and aerospace companies. The MSS is the intelligence and security agency for China and is responsible for counter-intelligence, foreign intelligence and political security. It has the power to conduct espionage both in China and abroad.

The indictment explains that from 2013 to 2018, Xu targeted certain aviation companies (in and outside of the US) and proceeded to contact specific experts who worked within those companies. Xu was able to get some of them to travel to China, under the pretense that they would be delivering a university presentation. These employees travel was paid for in addition to stipends by Xu. GE Aviation was one of the companies listed in the indictment that Xu encountered.

Xu was extradited to the US this month, Assistant Director Bill Priestap of the FBI’s Counterintelligence Division explained, “This unprecedented extradition of a Chinese intelligence officer exposed the Chinese government’s direct oversight of economic espionage against the United States.”

Justice: https://www.justice.gov/opa/pr/chinese-intelligence-officer-charged-economic-espionage-involving-theft-trade-secrets-leading


Epsilon vs. OFAC: Third Party Risks & “Reason to Know”

2018/10/30

By: Danielle Hatch

Before I get to the nitty gritty of this case its important to remember that companies can be held liable for sanctions violations when they export a product to a third-party in another country and know or have reason to know that the third party intends to reexport their product to Iran. Companies must do their due diligence to make sure that that third party who is receiving their products isn’t planning on sending them to Iran. Now that that’s out of the way, let’s get started.

Note: This case was between the Office of Foreign Assets Control (OFAC) and Epsilon Electronics but Power Acoustik Electronics who is a subsidiary of Epsilon who engaged in the transactions in question.

Epsilon Electronics, also doing business as Power Acoustik Electronics, Sound Stream, Kole Audio, and precision Audio has agreed to pay $1.5 million to OFAC to settle the enforcement case related to alleged violations of the Iranian Transactions and Sanctions Regulations (ITSR). OFAC’s Penalty Notice alleged that Epilson violated the ITSR when it issued 39 invoices for sales to Asra Internationals LLC from 2008 to 2012 because Epsilon knew or had reason to know that Asra was distributing its products to Iran.

In 2008 OFAC found out that Power Acoustik exported items to an address in Iran. OFAC issued a subpoena and eventually sent the company a cautionary letter in 2012. During a separate investigation, OFAC uncovered wire transfers from Asra International (company located in Dubai) to Power Acoustik totaling more than $1.1 million between 2010 and 2011. OFAC believed that these wires may have been for products that were destined to Iran and they issued another subpoena to Power Acoustik. The company explained that they had 41 sales of audio and video equipment to Asra between 2008 and 2012 which explained the wire transfers. During a further investigation, OFAC did not directly find any proof that any of the equipment was reexported to Iran by Asra but they did find a website for Asra that specified that the company provided car audio and video products to Iran. The Iran affiliate’s address on Asra’s website was the same address as the 2008 address that OFAC initially sent a subpoena to Power Acoustik for, related to the illegal shipment.

OFAC then issued a Penalty Notice to Epsilon for $4 million based on 34 non-egregious violations (those that occurred before the 2012 cautionary letter) and 5 egregious violations (occurred after the cautionary letter). Epsilon challenged OFAC’s Penalty Notice in the US District Court for the District of Columbia and lost. The company than appealed the order to the US Court of Appeals for the District of Columbia which affirmed the 34 non-egregious violations but reversed the 5 egregious violations to be non-egregious changing the penalty from $4 million to $1.5 million. The Court of Appeals found that an exporter may be found liable if it exports goods from the US to a third country, with reason to know that those goods are specifically intended for reexport to Iran, even if they never make it to Iran. The “reason to know” requirement for OFAC can be established “through a variety of circumstantial evidence” including “course of dealing, general knowledge of the industry or customer preferences, working relationships between parties, or other criteria far too numerous to enumerate.”

Up until 2011, Asra distributed to Iran exclusively, making the evidence on their website evidence for OFAC that Power Acoustik could have reasonably inferred that Asra only distributed its products to Iran. The Court of Appeals found that the final five exports didn’t fit the “reason to know” standard because OFAC did not address several emails between Acoustik’s sales team and an Asra manager between 2011-2012 which explained that their products were going to be sold from Asra’s new retail store in Dubai…causing the 5 violations to be changed.

OFAC saw the following as aggravating factors:

  1. The alleged violations constituted or resulted in a systematic pattern of conduct
  2. Epsilon exported goods valued at $2,823,000 or more
  3. Epsilon had no compliance program at the time of the alleged violations

OFAC considered the following to be mitigating factors:

  1. Epsilon has not received a Penalty Notice or a Finding of Violation in five years preceding the transactions that gave rise to the alleged violations
  2. Epsilon is a small business
  3. Epsilon provided some cooperation to OFAC, including entering into an agreement to toll the statute of limitations for one year

The important take away from this case is that, as most people already know, there is a very far-reaching interpretation of what constitutes “reason to know” when dealing with third parties and Iran (and Cuba).

Enforcement Details: https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20180913_epsilon.pdf


Chinese National Sentenced to 46 Months in Prison for Illegal Exports

2018/10/29

By: Danielle Hatch

Si Chen, 33, known as “Cathy Chen” plead guilty to illegally exporting sensitive space communications technology to China was sentenced this month to 46 months in prison. Chen was arrested in May 2017 after an investigation by the Office of Export Enforcement uncovered her elaborate scheme involving illegal exports, money laundering, and forged passports.

Court documents show that from March 2013 to the end of 2015, Chen purchased and smuggled “jammers” which are used in military communications as well as devices used in space communication applications. The devices were worth more than $100,000 and required a license from the Department of Commerce for regional stability and national security reasons. Chen forged her passport, she used a Chinese passport with her photo on it and the name, “Chunping Ji” which she used to rent an office in Pomona, California where she would receive the export-controlled items. After she had the items, she would then ship them to Hong Kong using the false name on the passport, false product descriptions, and she undervalued the items on the shipping documents to avoid red flags or suspicions. Once the items reached Hong Kong they were then transshipped to China. Chen received the money for the items via an account at a bank in China in one of her family member’s names once the items reached China.

United States Attorney Nick Hana explained during the sentencing, “This defendant knowingly participated in a plot to secretly send items with military applications to China. The smuggled items would be used in a number of damaging ways, including in equipment that could jam our satellite communications. We will aggressively target all persons who provide foreign agents with technology in violation of US law.”

Justice: https://www.justice.gov/usao-cdca/pr/pomona-woman-sentenced-federal-prison-scheme-smuggle-restricted-space-communications


Owner of Defense Firm Charged with Defrauding DOD out of 7 Million in Contracts

2018/09/27

By: Danielle Hatch

Ferdi Murat Gul (Fred Gul), 42, of Turkey has been indicted by a grand jury on the following counts:

  • One count of conspiracy to commit wire fraud
  • Six counts of wire fraud
  • One count of conspiracy to violate the Arms Export Control Act (AECA)
  • Once substantive count of violating the Arms Export Control Act

Gul is the principal owner, chief executive office, and general manager of Bright Machinery Manufacturing Group Inc. (BMM), a defense contracting company in New Jersey and FMG Machinery Group (FMG), a purported manufacturing company in New York. He also has an ownership interest in HFMG Insaat (HFMG), a manufacturing company located in Turkey.

Between October 2010 and June 2015 Gul would submit bids for DoD contracts for BMM, he would submit quotes based on BMM providing military goods manufactured in the US. BMM actually relied on Gul’s Turkish company, HFMG for the goods. Over the course of 5 years BMM was awarded approximately $7 million in DoD contracts. BMM fraudulently won 346 contracts to manufacture torpedoes for the US Navy, bomb ejector racks, and armament utilized in US Air Force aircraft, and firearms and mine clearance systems used by US military abroad. Later testing by the DoD exposed the some parts had several design flaws and were unusable.

Gul and his conspirators hid the fraudulent activity from the government by submitting forged certifications and fabricated information by email to DoD. They also falsely claimed that they performed quality control on the procedures and parts sold to DoD. To have HFMG create the parts for BMM, Gul exported drawings and technical data to Turkey. Some of this information was subject to the International Traffic in Arms Regulations (ITAR) and required a license form the State Department.

The wire fraud counts carry a maximum penalty of 20 years in prison and a fine of $250,000. The Arms Export Control Act violations carry a maximum penalty of 20 years in prison and a $1 million fine.

Ferdi Murat Gul is currently at large and believed to be in Turkey. Also remember…The charges and allegations of this indictment are merely accusations, and the defendant is considered innocent until proven guilty (cue sound from Law & Order).

Department of Justice: https://www.justice.gov/usao-nj/pr/owner-defense-firm-charged-conspiracy-defraud-department-defense-7-million-violate-arms


French Lender Has Been Saving for $1.27 Billion in US Sanctions Penalties

2018/09/27

By: Danielle Hatch

French multinational bank, Société Générale (SocGen) has released a statement that the lender believes it will be reaching a resolution in the coming weeks related to transactions it processed related to persons subject to US sanctions. The bank has been setting aside funds to cover the penalties since 2017 and they believe they have done it. In their statement, SocGen says that they expect the US penalty of 1.2 Billion to be, “almost entirely covered” by the provisions it’s been saving.

In June, SocGen agreed to pay $1.3 billion to authorities in the US and France to end disputes over transactions related to Libya and over the suspected rigging of Libor, an interest rate used in contracts worth trillions of dollars globally. The bank’s CEO at that time, Didier Valet, was released as part of the settlement.

ScoGen has also already paid 963 million euros in 2017 to settle disputes with the Libyan Investment Authority, a sovereign wealth fund.

A little background related to fines related to banks and sanctions penalties: In 2015, Credit Agricole SA (France’s second largest bank), paid $787 million in fines to cover a similar sanctions case. Four years ago, BNP Paribas SA plead guilty to charges related to transactions involving Iran, Cuba and Sudan and they paid $9 billion.

Statement: https://www.societegenerale.com/sites/default/files/regulated_information_090418.pdf


President Signs Export Controls Legislation Subjecting Emerging and Foundational Technologies to Enhanced Controls

2018/08/30

(Source: Vinson & Elkins LLP, 14 Aug 2018.)

By: David R. Johnson, Esq., drjohnson@velaw.com, +1 202-639-6706; and Daniel J. Gerkin, Esq., dgerkin@velaw.com, +1 202-639-6654. Both of Vinson & Elkins LLP.

The President has signed the National Defense Authorization Act of 2019 (“NDAA”), which, in addition to expanding the jurisdiction of the Committee on Foreign Investment in the United States (“CFIUS”) to review foreign direct investment,1 implements the Export Control Reform Act of 2018 (“ECA”), which sharpens the focus of the U.S. government on emerging and foundational technologies that are deemed not to have been adequately addressed by the prevailing U.S. export control regimes. The NDAA also places limits on the procurement of equipment and services from certain Chinese entities, though certain Members of Congress had adamantly advocated for much more stringent restrictions.

Please find a more detailed discussion of certain of the key aspects of the ECA, as well as the procurement-related restrictions set forth in the NDAA, below.

Export Controls Act of 2018

Permanent Statutory Authority for U.S. Export Controls. With limited exceptions, the ECA repeals the Export Administration Act of 1979, which lapsed several years ago and has been statutorily authorized each year since pursuant to Executive Orders issued under the International Emergency Economic Powers Act (“IEEPA”). Accordingly, the ECA now serves as the permanent statutory authority for the U.S. Export Administration Regulations (“EAR”), which generally govern the export, reexport, and in-country transfer of commercial and dual-use commodities, software and technology, and which are administered by the Bureau of Industry and Security, U.S. Department of Commerce (“BIS”).2

Treatment of Emerging and Other Types of Critical Technologies. In addition to ensuring permanent statutory authority for the existing commercial and dual-use export controls regime, the ECA directs the President, in coordination with the Departments of Commerce, Defense, State, and Energy to develop a “regular and robust process to identify the emerging and other types of critical technologies of concern and regulate their release to foreign persons as warranted regardless of the nature of the underlying transaction.” Specifically, these agencies are tasked by the ECA with identifying “emerging and foundational technologies” that are essential to the national security of the United States, but which are not currently controlled for export purposes.3

The process for identifying such technologies will be informed by publicly available information, classified information, information arising out of the CFIUS review process, and information generated by the various BIS advisory committees, and will take into account the development of such technologies in foreign countries, the effect export controls might have on continuing U.S. development efforts, and the effectiveness of export controls with respect to limiting the proliferation of such technologies to foreign countries.

The identified technologies will, following a notice and comment period, be subjected to enhanced U.S. export controls, possibly to include licensing requirements, and will be proposed for inclusion in multilateral export control regimes. At a minimum, licenses will be required for countries subject to a U.S. embargo, including those that solely are arms embargoed, such as China.4 Please note that license applications submitted by or on behalf of a joint venture, joint development agreement, or similar collaborative arrangement may require the identification of any foreign person with a significant ownership interest in a foreign person participating in the arrangement.

The following activities will be excepted from any licensing requirements:

  • The sale or lease of a finished item and the provision of associated technology if such items and technology are generally made available to customers, distributors, or resellers;
  • The sale or license to a customer of a product and the provision of integration or similar services if such services generally are made available to customers;
  • The transfer of equipment and provision of associated technology to operate the equipment if the foreign person could not use the equipment to produce critical technologies;
  • The procurement by a U.S. person of goods or services, including manufacturing services, from a foreign person if the foreign person has no rights to exploit any technology contributed by the U.S. person other than to supply the procured goods or services; and
  • Contributions and associated support provided by a U.S. person to an industry organization related to a standard or specification, whether in development or declared, including any license of, or commitment to license, intellectual property in compliance with the rules of any standards organization.

The ECA requires reporting to Congress and to CFIUS every 180 days regarding actions taken to identify and control emerging and foundational technologies.

Changes to Licensing Process. The ECA mandates that applications for licenses address “the impact of a proposed export of an item on the United States defense industrial base” and an assessment of whether “the denial of an application for a license or a request for an authorization of any export that would have a significant negative impact on such defense industrial base.” By significant negative impact, the ECA means:

  • “A reduction in the availability of an item produced in the United States that is likely to be acquired by the Department of Defense . . . for the advancement of the national security of the United States, or for the production of an item in the United States for the Department of Defense . . . for the advancement of the national security of the United States.”
  • “A reduction in the production in the United States of an item that is the result of research and development carried out, or funded by, the Department of Defense . . . to advance the national security of the United States, or a federally funded research and development center.”
  • “A reduction in the employment of United States persons whose knowledge and skills are necessary for the continued production in the United States of an item that is likely to be acquired by the Department of Defense . . . for the advancement of the national security of the United States.”

Criminal and Civil Penalties. Like the IEEPA, the ECA authorizes criminal penalties of up to $1 million and imprisonment for not more than 20 years. However, the ECA increases the current inflation-adjusted maximum civil penalty to the greater of $300,000 or twice the value of the underlying transaction. These also are the criminal and civil penalties set forth in the Anti-Boycott Act of 2018.

Treatment of Certain Chinese Telecommunications Equipment Manufacturers and Service Providers

Over the objections of Sen. Marco Rubio, among others, the NDAA ultimately did not reimpose sanctions on Chinese telecommunications equipment manufacturer and service provider, Zhongxing Telecommunications Equipment Corporation (“ZTE Corporation”), and certain of its affiliates, which were subject to a BIS denial order arising out of U.S. export control violations stemming from transactions involving Iran and North Korea. That denial order was terminated, effective July 13, 2018.

The ECA does, however, prohibit federal agencies from procuring or obtaining, or entering into contracts with entities using, equipment, systems, or services that, in turn, use Chinese-origin telecommunications equipment or services deemed to be a “substantial or essential component of any system” or “critical technology as part of any system.” The targeted Chinese-origin telecommunications equipment or services are:

  • Telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation or any subsidiary or affiliate of such entities;
  • For the purpose of public safety, security of government facilities, physical security surveillance of critical infrastructure, and other national security purposes, video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Technology Company, Dahua Technology Company, or any subsidiary or affiliate of such entities;
  • Telecommunications or video surveillance services provided by any of the above-named entities or using the above-described equipment; and
  • Telecommunications or video surveillance equipment or services produced or provided by an entity reasonably believed to be owned or controlled by, or otherwise connected to, the Chinese government.

 

Visit our website to learn more about V&E’s Export Controls and Economic Sanctions practice. For more information, please contact Vinson & Elkins lawyers Dave Johnson or Daniel Gerkin.

The changes to the CFIUS review process are discussed in greater detail at http://www.velaw.com/Insights/President-Signs-Sweeping-Expansion-of-CFIUS-Review-of-Foreign-Direct-Investment/.
2 The EAR also encompass the regulations that govern the participation of U.S. persons in unsanctioned foreign boycotts. These regulations now are permanently authorized by the Anti-Boycott Act of 2018.
Please note that the EAR currently allow for the imposition of temporary controls on items in accordance with their interim classification within Export Control Classification Number 0Y521.
4 The ECA also requires a review of the current controls on exports, reexports, and in-country transfers for military end uses and military end users in U.S. and United Nations arms-embargoed countries, as well as a review of the Commerce Control List of items that currently are not subject to any licensing for U.S. arms-embargoed countries.


Swedish Telecom Company Pays Penalty for Sanctions Violation

2018/08/30

By: Thad McBride on July 19, 2018

Thad McBride is a member at Bass, Berry & Sims PLC (Washington, DC) and leads the firm’s International Trade Practice Group. He regularly counsels clients on compliance matters related to economic sanctions and embargoes, export controls, CFIUS, US anti-boycott controls, customs, and other import controls. In addition, he guides clients through internal audits and investigations and represents companies facing government investigations and enforcement actions. He is a regular contributor to the firm’s Government Contracts and International Trade blog and can be reached at tmcbride@bassberry.com

POSTED IN INTERNATIONAL TRADESANCTIONS (OFAC)

  • Ericsson Caused Violation by Having U.S. Party Ship Equipment to Sudan
  • U.S. Employee Facilitated Sudan Business
  • OFAC Expects Parties Conducting International Business to Have Robust Compliance Processes

In June 2018, the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) announced that Ericsson, a Swedish telecommunications company, agreedto pay approximately $145,000 for violating U.S. sanctions on Sudan.  Among other things, this is one of the few OFAC enforcement actions explicitly premised on a non-U.S. actor causing a U.S. company to violate U.S. sanctions.

Non-U.S. Companies Can Violate Sanctions If They Cause a Violation

According to OFAC, the violations involved Ericsson, AB (EAB), which is based in Sweden, causing a U.S. seller of a satellite hub to export that hub from the United States to Sudan.  Interestingly, in connection with EAB’s purchase of the satellite hub, an EAB employee communicated about the matter with Ericsson’s compliance department.  In those communications, the EAB employee was informed that the purchase of the satellite would violate Ericsson’s sanctions compliance policy.

Yet the EAB employee proceeded with the acquisition, with support from an Ericsson employee in the United States.  OFAC asserted that the two Ericsson employees agreed to identify “Botswana” as the destination of the satellite hub.  The EAB employee then structured the acquisition so that the satellite hub was shipped through several other countries, including with help from a third party in Lebanon, before eventually arriving in Sudan.

U.S. Employee Facilitated Transaction by Supporting the Sudan Business

It appears that, when the Ericsson U.S. employee was first contacted by his counterparts at EAB, he informed them that he could not be involved in any Sudan business.  But subsequently, he did assist his EAB counterparts by providing technical guidance related to the Sudan project.  (The U.S. employee sent one e-mail related to Sudan in which “East Africa” was listed as the subject of the e-mail.)  The U.S. employee also met in person with an EAB employee to discuss the project.

There is no indication that the U.S. employee had any role in purchasing or shipping the satellite hub to Sudan.  Nonetheless, by providing guidance and advice about the Sudan project, the U.S. employee facilitated that project and thereby violated U.S. sanctions on Sudan.  Like other U.S. sanctions programs, under U.S. sanctions on Sudan, U.S. persons were prohibited from indirectly supporting (or facilitating) a project in Sudan that the U.S. person could not engage in directly.

Conduct Occurred Well Before Recent Lifting of U.S. Sanctions on Sudan

As we have discussed in prior blog posts (see this January 2018 blog post), it typically takes a long time for OFAC to impose penalties for sanctions violations.  The conduct at issue in the Ericsson matter occurred in 2011 and 2012.  Ericsson tolled the statute of limitations during OFAC’s investigation of the matter.

In fact, by the time Ericsson agreed to settle the matter, U.S. sanctions on Sudan had been lifted.  However, the U.S. government does maintain export controls on Sudan under the Export Administration Regulations.  As a result, an export license is needed to export most U.S.-origin items to Sudan, even though economic sanctions have been lifted.

This illustrates one of the practical challenges for U.S. companies considering business in Sudan.  Discussions about that business and even the provision of business services are generally permitted without a license.  Actual exports of products still usually require a license.  So Sudan is not entirely open for business from a U.S. perspective.

Compliance Is Complicated, Appropriate Resources Are Needed

The compliance narrative in this matter is jumbled.  As detailed above, the Ericsson compliance department advised the EAB employee – correctly – about the potential liability associated with Sudan business.  The U.S. employee of Ericsson originally responded to requests related to Sudan by stating his inability to work on a Sudan project.  Yet both the EAB employee and the Ericsson U.S. employee proceeded with the Sudan business.

This seems on its face like a situation in which company employees went rogue.  Notably, the company disclosed the violation to OFAC, which is one reason that OFAC imposed a penalty well below the statutory maximum amount (roughly $360,000).

Yet in imposing any penalty, OFAC indicates that Ericsson could have done better.  In particular, in the press release related to the matter, OFAC states the following:

This enforcement action highlights the importance of empowering compliance personnel to prevent transactions prohibited by U.S. economic and trade sanctions.  Entities should ensure their sanctions compliance teams are adequately staffed, receive sufficient technology and other resources, and are delegated appropriate authority to ensure compliance efforts meet an entity’s risk profile.

The Bass, Berry & Sims international trade team works closely with clients to assess their risks and put in place effective, cost-efficient measures to prevent and detect trade compliance violations.  OFAC clearly expects such measures.  Feel free to contact us anytime if we can assist in developing and implementing them.


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