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By: Johanna Reeves, Esq., jreeves@reevesdola.com; and Katherine Heubert, Esq., kheubert@reevesdola.com. Both of Reeves & Dola LLP.

(Source: Reeves & Dola LLP Alert, 29 Mar 2019.) [Available by subscription via info@reevesdola.com.]

As we inch closer to the publication of the final rules containing the rewrites to the International Traffic in Arms Regulations (ITAR) U.S. Munitions List (USML) Categories I, II and III, we continue with our series of alerts introducing those in the export community who may be less familiar with the various differences between the ITAR and the Export Administration Regulations (EAR). One of those differences is the way each agency handles enforcement activities. In this alert we will take a look at the U.S. Department of Commerce, Bureau of Industry and Security (BIS), Office of Export Enforcement (OEE).

Most folks in the firearms and ammunition industries are familiar with the Department of State, Directorate of Defense Trade Controls (DDTC), Office of Defense Trade Controls Compliance (DTCC). DDTC is responsible for the civil enforcement of the ITAR, and works with U.S. Immigration and Customs Enforcement (ICE) and U.S. Customs and Border Protection (CBP), who has the authority to investigate, detain, or seize any export or attempted export of defense articles or technical data contrary to the ITAR. Any criminal matters arising from a disclosure to DDTC are referred to the U.S. Department of Justice. When it comes to questions of compliance with the ITAR, the DTCC Compliance Specialists are responsible for reviewing and adjudicating any voluntary or directed disclosures of suspected violations of the ITAR and assessing any administrative penalties deemed warranted.

BIS administers and enforces export controls on items subject to the EAR under the authority of the Export Control Reform Act of 2018 (ECRA). Its Export Enforcement arm (EE) is made up of the Office of Export Enforcement (OEE), the Office of Enforcement Analysis (OEA), and the Office of Antiboycott Compliance (OAC). EE “protects and promotes U.S. national security, foreign policy, and economic interests by investigating violations, interdicting illegal exports, conducting end use checks, educating parties to export transactions on how to improve export compliance practices and identify suspicious inquiries, supporting the licensing process by evaluating the bona fides of transaction parties, and aggressively pursuing violators of export control laws for criminal prosecution or administrative penalties.”

In this alert, we focus on OEE, whose Special Agents are sworn federal law enforcement officers with authority to bear firearms, execute search warrants, serve subpoenas, make arrests, detain and seize items about to be illegally exported, and order the redelivery to the United States of items exported in violation of U.S. law. OEE is the only federal law enforcement agency exclusively dedicated to the enforcement of export control laws (the EAR), and it works closely with the Department of Justice to prosecute criminal violations, and with the Office of Chief Counsel for Industry and Security for civil enforcement cases.

BIS has the resources to send special agents to investigate suspected violations of the EAR. This includes investigating suspected export violations by U.S. persons, as well as suspected unauthorized reexports or transfers by foreign persons. As outlined on BIS’s website, OEE Special Agents also conduct end-use checks to confirm items are being used in accordance with any license conditions, as well as to assess the suitability of foreign end-users to receive U.S.-origin licensed goods and technology, assess prospective end-users on pending license applications for diversion risk, and conduct educational outreach to foreign trade groups.

BIS assembles summaries of recent enforcement activity into its Don’t Let This Happen to You publication, which is typically updated annually. As noted in its November 2018 edition, “in fiscal year 2017, BIS investigations led to the criminal convictions of 31 individuals and businesses for export violations with penalties of over $287 million in criminal fines, more than $166 million in forfeitures, and 576 months of imprisonment. In addition, OEE and BIS’s Office of Chief Counsel completed 52 administrative export matters, resulting in over $692 million in civil penalties.” (p. 4). In contrast, DDTC issued only two consent agreements in 2017 and 2018 combined.

Now, this is not to say that BIS throws the book at every entity that comes in with a voluntary self-disclosure, or even every entity that is investigated. Quite the opposite. The majority of voluntary self-disclosures are closed with the issuance of a warning letter and without administrative penalty, much like DTCC. However, your odds for finding yourself with an OEE Special Agent knocking on your door if you violate the EAR are higher.

OEE also participates in the Export Enforcement Coordination Center (E2C2) along with 14 other federal agency partners. The Center is housed in the Department of Homeland Security; the Director of the Center is from DHS, and the two Deputy Directors are from BIS and FBI. The following is a list of the partner agencies:

  • S. Department of Commerce, Bureau of Industry and Security, Office of Export Enforcement
  • S. Department of Defense, Air Force Office of Special Investigations
  • S. Department of Defense, Defense Criminal Investigative Service
  • S. Department of Defense, Defense Intelligence Agency
  • S. Department of Defense, Defense Security Service
  • S. Department of Defense, Naval Criminal Investigative Service
  • S. Department of Energy, National Nuclear Security Administration
  • S. Department of Homeland Security, Customs and Border Protection
  • S. Department of Homeland Security, Immigration and Customs Enforcement
  • S. Department of Justice, Bureau of Alcohol, Tobacco, Firearms and Explosives
  • S. Department of Justice, Federal Bureau of Investigation
  • S. Department of Justice, National Security Division
  • S. Department of State, Directorate of Defense Trade Controls
  • S. Department of the Treasury, Office of Foreign Assets Control
  • S. Export-Import Bank, Office of the Inspector General
  • S. Postal Service, Postal Inspection Service
  • Office of the Director of National Intelligence, Office of the National Counterintelligence Executive

Below is a sampling of EAR criminal and administrative cases. For a full list of recent enforcement cases, please refer to Don’t Let This Happen to You (Nov. 2018). As you will see, these cases are not limited to violations involving items that are enumerated on the Commodity Control List (CCL), but also include items classified as EAR99. The criminal and administrative cases run the gambit and illustrate the importance of maintaining a robust compliance program:

(1) The Violation: On April 15, 2015, Hassan Jamil Salame pled guilty in U.S. District Court for the District of South Carolina to charges related to the attempted smuggling of shotguns and other firearms and ammunition classified under ECCN 0A984 from the United States to Lebanon. Salame attempted to export the items to Lebanon without the required export licenses and knowingly failed to declare the items on Shipper’s Export Declarations. This case resulted from a joint investigation with OEE’s Washington Field Office, ICE, ATF, and CBP.

The Penalty: On November 3, 2015, Salame was sentenced to 45 months in prison, 36 months of probation, and a $300 special assessment. Additionally, Salame agreed to a 10-year denial of export privileges.

(2) The Violation: From November 2003 to August 2010, Boniface Ibe of Mitchellville, Maryland bought 194 shotguns and a .22 caliber handgun from firearm dealers in the Washington, DC and Baltimore metropolitan areas. In September 2010, law enforcement inspected one of Ibe’s shipping containers destined for Nigeria and discovered eight shotguns, one .22 caliber handgun and .22 caliber ammunition concealed in a car inside the container. Shotgun ammunition was found in another vehicle in the container. Dock receipts indicated that an individual in Nigeria was to receive the container, as well as at least four other containers shipped to Nigeria in 2008 and 2009. The handgun and ammunition are controlled under the International Traffic in Arms Regulations and the shotguns are classified under ECCN 0A984 for export by the U.S. Department of Commerce, all of which require a license for export. On February 9, 2011, Ibe pled guilty in U.S. District Court in the District of Maryland to violating IEEPA, illegally exporting defense articles, and delivering a firearm to a common carrier without written notice. This case resulted from a joint investigation conducted by OEE’s Washington Field Office, ICE, and ATF.

The Penalty: On July 11, 2011, Ibe was sentenced to five months in prison, 10 months of supervised release, and a $300 special assessment. Ibe is listed on the U.S. Department of State’s Debarred List and, pursuant to an order issued by BIS on December 21, 2012, is the subject of a ten-year denial order.

(3) The Violation: On 21 occasions between 2006 and 2007, Dreco Energy Services Ltd. of Canada caused, aided and/or abetted the export from the United States to Iran, via Canada, of EAR99 U.S.-origin oil and gas equipment valued at $2,315,253 without the required authorization. After ordering and obtaining the items from the U.S. without disclosing that the items were intended to fulfill orders from Iranian customers, Dreco Energy Services Ltd. transshipped the items from Canada to Iran, and specifically to the National Iranian Drilling Company and to Kala Naft, the procurement arm of the National Iranian Oil Company. In 2012, National Oilwell Varco (NOV) sold and/or transferred filament winder mandrels valued at $69,615 to Oman. The filament winder mandrels were classified under ECCN 1B201 and required an export license. NOV had applied for and received an export license from BIS for a total of nine filament winder mandrels, but instead exported a total of 21 of the items. This case resulted from a joint investigation conducted by OEE’s Houston Resident Office and ICE

The Penalty: On November 8, 2016 NOV signed a Non-Prosecution Agreement (NPA) with BIS, DOT, OFAC, ICE, and DOJ. The NPA specifies that NOV forfeit $22,500,000 in funds to the DOT Forfeiture Fund. Additionally, on November 8, 2015, Dreco Energy Services Ltd. and NOV agreed to pay a $2,500,000 civil penalty to BIS.

(4) The Violation: On two occasions during 2012, Cryofab, Inc. of Kenilworth, New Jersey, engaged in conduct prohibited by the EAR by exporting gas storage containers and related tools and accessories designated EAR99 to the Bhabha Atomic Research Center (BARC), without the required BIS export licenses. At the time of the exports, BARC appeared on the BIS Entity List. Although an experienced exporter, Cryofab Inc. failed to screen against the BIS Entity List in connection with these two transactions, and failed to seek or obtain the required BIS export licenses. It also erroneously listed the items as eligible for shipment without a license on the Shipper’s Letter of Instructions for each shipment. This case resulted from an investigation conducted by OEE’s New York Field Office.

The Penalty: On August 18, 2017, Cryofab, Inc. agreed to pay a $35,000 civil penalty. The company was also ordered to complete an external audit of its export controls compliance program, to be conducted by an unaffiliated third-party consultant.

(5) The Violation: On 53 occasions between 2011 and 2012, Federal Express (FedEx), located in Memphis, Tennessee, facilitated the export of civil aircraft parts and equipment used for electronic microscope manufacturing classified under ECCN 9A991 or 7A994, or designated EAR99, and valued at approximately $58,091 from the U.S. to Aerotechnic France (Aerotechnic), or to the Pakistan Institute for Nuclear Science and Technology (PINSTECH) in Pakistan, without the required BIS licenses. Aerotechnic was added to the BIS Entity List in June 2011 “based on evidence that [it had] engaged in actions that could enhance the military capability of Iran, a country designated by the U.S. Secretary of State as having repeatedly provided support for acts of international terrorism…[and] because [its] overall conduct posed(d) a risk of ongoing EAR violations. PINSTECH is a subordinate entity of the Pakistan Atomic Energy Commission, and has been on the BIS Entity List since November 1988, when it was added to the Entity List along with a number of other Pakistani government (and parastatal and private) entities involved in nuclear or missile activities shortly after Pakistan detonated a nuclear device.

The Penalty: On April 24, 2018 FedEx agreed to pay a $500,000 civil penalty.

(6) The Violation: In 2009, Griffin & Howe entered into a Settlement Agreement with BIS in connection with alleged unlicensed exports in violation of the EAR over a four-year period from July 2004 to April 2008. The alleged violations consisted of two instances of exporting optical sighting devices (ECCN 0A987) to Zambia without the required licenses, and four instances of exporting shotguns (ECCN 0A984) to Canada and Chile without the required licenses.

The Penalty: The company was assessed a civil penalty of $67,000.

These cases illustrate the need to know your customer (screening), the details of your transaction (including the chain of custody in shipping), as well as the importance of properly filing export documentation with U.S. Customs and Border Protection. They also reflect the wide variety of penalties and oversight actions that BIS can impose on a company found to have violated the EAR. We say all of this not to strike fear in the hears of our readers about BIS and the EAR, but to underscore that transiting to the EAR will not be a lessening of controls or oversight. To the contrary, it will provide more resources to investigating compliance concerns. BIS has experience overseeing the export of firearms (shotguns) as well as arguably every other product under the sun, so they are ready. With OEE’s Special Agents, there will now be a dedicated law enforcement agency to investigate potential export control violations both at home and abroad.