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.


Wassenaar Releases Due Diligence Questions

2019/02/20

In December 2018, the Wassenaar Arrangement updated its current list of indicative questions that companies should use “in any export situation” in order to help companies recognize potential compliance issues and red flags before a violation occurs. The document states that, “Being vigilant for signs of suspicious enquiries or orders is vital for countering the risks of the proliferation of sensitive goods and technologies and destabilising accumulations of conventional weapons.”

The document contains 35 questions and notes that, “Corresponding answer(s) to any of the questions below should not be considered as the basis for an automatic rejection of an export. The intention of the questions is rather to flag the need for greater scrutiny while examining exports.”

List of Advisory Questions for Industry: https://www.wassenaar.org/app/uploads/2018/12/Advisory-Questions-for-Industry-Amended.pdf


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


New EU Trade SPV to Keep Iran Afloat After US JCPOA Withdrawal

2019/02/20

By: Danielle Hatch

Recently France, Germany and Britain have started working on a new channel (Special Purpose Vehicle) for non-dollar trade with Iran to avoid the newly re-imposed US sanctions on the country. Last year the United States withdrew from the Joint Comprehensive Plan of Action (JCPOA) which had offered relief from US sanction on Iran for companies. Once the US left the JCPOA they began to the re-impose the trade sanctions on Iran, not only impacting US entities but also causing secondary sanctions for European entities to deal with, especially if they wanted to continue trade with Iran.

The goal of the re-imposed US sanctions is to encourage Europeans to stop business with Iran because of the threat of losing US business. This is puts European entities in a bit of a pickle because they would prefer to keep JCPOA up and running, without the US. They are working hard to make the deal work after Iran threatened to leave the JCPOA if they are unable to keep receiving economic benefits for their part in the deal. The goal of the Special Purpose Vehicle (SPV) is to help match Iranian oil and gas exports against purchases of EU goods, the problem is, that it won’t realistically be used for large trade transactions that Iran wants to see. It’s more likely be used for small trade such as humanitarian products or food. A European diplomat explained, “It won’t change things dramatically, but it’s an important political message to Iran to show that we are determined to save JCPOA and also to the United States to show we defend our interests despite their extraterritorial sanctions.”

“We do not expect the SPV will in any way impact our maximum economic pressure campaign,” a US State Department spokeswoman said. “The United States questions the efficacy of the SPV and remains committed to fully enforcing its sanctions,” another senior Trump administration offered.

Unfortunately, as the SPV is still months away from being operational, relations between the European Union and Iran have been strained. The EU recently imposed its first sanctions on Iran since JCPOA after ballistic missile tests and assassination plots were revealed on European soil. The EU added two Iranian individuals and an Iranian intelligence unit to its terrorist list. They are also still deciding if another push for new sanctions on Iran over its missile program will be part of the SPV.

“We are clear; this commitment does not in any way preclude us from addressing Iran’s hostile and destabilizing activities” Jeremy Hunt explained (British Foreign Secretary).

More information: https://www.reuters.com/article/us-germany-japan-iran/other-countries-not-seen-joining-european-iran-trade-mechanism-soon-german-official-idUSKCN1PP195

https://www.reuters.com/article/iran-usa-sanctions-reaction/u-s-sees-no-impact-from-eu-trade-mechanism-for-iran-idUSS8N1ZH05G


DDTC New Advisory Opinions Application is Live

2019/02/20

Earlier this month the Directorate of Defense Trade Controls (DDTC) released the new Advisory Opinions Application which is supposed to offer users faster, more convenient submission and status tracking. The application can be found in the Defense Export Control and Compliance System (DECCS).

All current DTrade Super Users with valid email addresses will be automatically enrolled in DECCS in the coming weeks and receive an email to activate their DECCS accounts in order to use the new application. If you are not a Super User, or do not want to wait to receive your account activation you can enroll and create a new DECCS account at: https://www.pmddtc.state.gov/?id=ddtc_kb_article_page&sys_id=652e00b7db78d300d0a370131f961946.

More information about DECCS and the new application is available at: https://www.pmddtc.state.gov/?id=ddtc_public_portal_homepage


The Politics Behind the (Possible) Upcoming Shift of Gun Exports

2019/02/20

By: Danielle Hatch

Officials from the State Department and the Commerce Department told Congress privately that they intend to finalize rules in the coming weeks that would shift most consumer gun exports from the State Department to the Commerce Department’s jurisdiction. In a nutshell, semiautomatic and single-shot firearms, as well as a range of parts and components would make the transition while the State Department would continue to control the sale of automatic weapons as well as items that serve “a critical military advantage or perform an inherently military function.”

Politically there has been push back on the changes by liberal lawmakers and democrats who believe the proposed shift could do more harm than good for national security. The Trump administration is reminding lawmakers that this roll out is nearly identical to the proposed changes released by President Obama that became delayed and never reopened after the Sandy Hook Elementary School shooting that killed 26 people in 2012. Although none of these rule changes are related to domestic gun control, the idea of easing any regulations on guns after shootings doesn’t sit well with the most Americans.

The changes are meant to cut costs for businesses and prioritize the control of military grade or other arms that pose national security concerns rather than commercial items. The shift will also cause Congress to lose the ability to oversee any commercial arms sales worth $1 million or more which is currently required under the Arms Export Control Act. The act requires the State Department to submit information on sales this large for congressional review, the Commerce Department does not have such a requirement.

Learn More: https://www.nytimes.com/2019/01/31/us/politics/gun-exports-trump.html

https://www.nbcnews.com/news/amp/ncna968601


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


OFAC Releases Countries Requiring Cooperation with Boycotts

2019/02/20

Recently, a Federal Register notice was released that provided a current list of countries which require or may require participation in, or cooperation with, an international boycott. The Department of Treasury has released the following list:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

Federal Register: https://www.govinfo.gov/content/pkg/FR-2019-02-06/pdf/2019-01136.pdf