BIS Office of Antiboycott Compliance Settles Penalty Case for $162,000

The U.S. Department of Commerce, Bureau of Industry and Security, Office of Antiboycott Compliance (“OAC”) reached its first penalty settlement of the year last month. On February 17, 2017, the OAC settled with a California company, Pelco, Inc., regarding allegations of sixty-six (66) violations of the Export Administration Regulations (“EAR”) in the amount of $162,000.

The antiboycott regulations of the EAR impose two (2) separate obligations on companies and individuals that are subject to the jurisdiction of the BIS. Relevant to this case, first, U.S. parties are prohibited from agreeing to refuse or actually refusing to do business with or in Israel or with so-called blacklisted companies, in compliance with an unauthorized boycott under U.S. law. In addition, U.S. parties are required to report requests to engage in a restrictive trade practice of a foreign boycott against a country friendly to the United States. The primary boycott of concern is the Arab League boycott of Israel.

In the recent settlement, the OAC proposed charging that on thirty-two (32) occasions Pelco, Inc., with intent to comply with, further or support and unsanctioned foreign boycott, or knowingly agreeing to refuse to do business with another party according to an agreement, requirement, or a request from or on behalf of a boycotting country, in violation of EAR’s antiboycott compliance regulations. In addition, the OAC proposed charging Pelco, Inc., with failing to report receiving these requests on thirty-four (34) occasions. Parties receiving such requests are required to report them quarterly on form BIS 6051P, which can be accessed here or through the BIS website.

The limited facts contained in the Proposed Charging Letter, Settlement Agreement and BIS Order show that the alleged violations occurred over a nearly five (5) year period, between May 2011 through January 2016. The transactions involved the sale of goods from the U.S. to the UAE and Kuwait, both of which are generally considered to be countries friendly to the U.S.

Specifically, the alleged violations involved conditions in purchase orders that Pelco, Inc. received that required it to conform to Israeli boycott regulations or to comply with the Israeli boycott list. In the Proposed Charging Letter, BIS alleged that several purchase orders stated “PRODUCTS MUST CONFORM TO ‘ISRAELI BOYCOTT & UAE REGULATIONS’” and that purchase orders from Kuwait stated “PLEASE ENSURE THAT THE CONSIGNMENT DOES NOT CONTAIN ANY GOODS MANUFACTURED BY THOSE…ON THE ISRAELI BOYCOTT LIST.” Pelco, Inc. allegedly failed to delete, amend, or otherwise expressly take exception to these provisions.

The settlement agreement indicates that the company, at least in part, voluntarily disclosed the apparent violations. In reaching the settlement, the company did not admit the truth of the allegations in the Proposed Charging Letter or that it violated the antiboycott regulations under the EAR.

The Trump Administration’s public statements of strong support for Israel, coupled with its equally strong statements on trade enforcement and this significant penalty settlement, must serve as a stark reminder of a company’s dual compliance obligations under the antiboycott regulations of the EAR and that violations of them can be costly.

For questions on and assistance with antiboycott compliance and related export control matters, including representation in voluntary self-disclosures and investigations, please contact Jon P. Yormick, Esq., at jon@yormicklaw.com or toll free (Canada & U.S.) 866.967.6425.

U.S. Imposes New Export Controls on Russia’s Energy Sector and Adds Russian Shipbuilder to Entity List

On 1 August, Under Secretary of Commerce for Industry and Security, Eric L. Hirschhorn, signed a rule amending the Export Administration Regulations (EAR) to “impose additional sanctions implementing U.S. policy toward Russia,” and address the ongoing developments in Ukraine.  Under the rule, the Bureau of Industry and Security (BIS) imposes export controls on items used in Russia’s energy sector, including exploration and production from deepwater, Artic offshore, and shale projects.  The rule also adds state-owned shipbuilder, United Shipbuilding Corporation, to the Entity List.  On 31 July, the Office of Foreign Assets Control (OFAC) added United Shipbuilding Corporation, to the Specially Designated Nationals and Blocked Persons (SDN) List.

The new rule adds 15 CFR § 746.5 to the EAR, “Russian Industry Sector Sanctions,” and imposes export, reexport, and transfer controls on items classified under the following Export Control Commodity Numbers (ECCNs): 0A998 (Oil/gas exploration equipment, software, and data ), 1C992 (Commercial charges and devices containing energetic materials ), 3A229 (Firing sets and equivalent high-current generators), 3A231 (Neutron generator systems), 3A232 (Detonators and multipoint initiation systems), 6A991 (Marine or terrestrial acoustic equipment ), 8A992 (Vessels, marine systems or equipment, “specially designed” “parts” and “components” therefor), and 8D999 (“Software” “specially designed” for operation of unmanned submersible vehicles used in oil/gas industry).  These new controls apply “when the exporter, reexporter or transferor knows or is informed that the items will be used directly or indirectly in Russia’s energy sector” for exploration and production from deepwater (more than 500 feet depth), Artic offshore, and shale oil/gas projects.  The rule goes on to identify, without limitation, examples of items that are specifically covered by the new Russian Industry Sector Sanctions, as follows: drilling rigs, parts for horizontal drilling, drilling and completion equipment, subsea processing equipment, Artic-capable marine equipment, wireline and down hole motors and equipment, drill pipe and casing, software for hydraulic fracturing (“fracking”), high pressure pumps, seismic acquisition equipment, remotely operated vehicles, compressors, expanders, valves, and risers.  The rule makes clear that “[n]o license exceptions may overcome the licensing requirements under new § 746.5,” except for license exception GOV, and that the license review policy is a presumption of denial.

The rule also adds Supplement No. 2 to Part 746, Russian Industry Sector Sanctions List.  This new supplement includes the ECCNs referenced above, but also includes more than 50 “Schedule B” numbers.  Schedule B numbers are a commodity classification number used for exports, administered by the U.S. Census Bureau and used for reporting foreign trade data.  The following main Schedule B numbers and items are listed: 7304, 7305, and 7306 (line pipe, drill pipe, casing), 8207 (rock drilling or earth boring tools and bits), 8413 (oil well pumps and elevators), 8421 (industrial gas cleaning and separation equipment), 8430 (offshore drilling and production platforms and boring/sinking machinery), 8431 (oil/gas field machinery parts), 8479 (oil/gas field wire line and downhole equipment), 8705 (mobile drilling derricks), and 8905 (floating or submersible drilling or production platforms and floating docks).

For U.S. companies and foreign companies that are subject to U.S. export controls and the jurisdiction of BIS, these new Russian energy sector sanctions pose new compliance challenges and risks.  As with any economic sanctions and export controls, but particularly with the progressing multilateral Ukraine-related sanctions, companies are urged to exercise enhanced due diligence in their compliance efforts.  U.S. and foreign companies that currently export, reexport, or transfer commodities, technology, and software covered by the ECCNs and Schedule B, should be alerted to this new rule and its compliance requirements.  U.S. companies and foreign companies that are subject to U.S. export controls that might only sell or transfer such items domestically should also undertake additional due diligence and not “self-blind” on determining whether Russia is the ultimate destination of the items.

The new rule can be found at this link, http://1.usa.gov/1okGBSH.

For assistance with understanding and complying with this new BIS rule, Ukraine-related and other economic sanctions laws, regulations, and Executive Orders, as well as representation before BIS and OFAC in investigations, civil penalty, and voluntary self-disclosures, please contact Jon P. Yormick, Attorney and Counsellor at Law, jon@yormicklaw.com or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.269.5138 (mobile).

Got Export Controlled Technology? Do not overlook Compliance with the Deemed Export Rule

The “deemed export” rule under the Export Administration Regulations (EAR) presents unique compliance challenges for universities, R&D centers, and any number of companies and organizations involved in high-tech fields.

In short, under the EAR, the release of export controlled technology to a foreign national is deemed to be an export to the country of which the foreign national is a citizen. A “release” includes giving a foreign national access to the controlled technology. The deemed export rule applies to foreign national employees who may be authorized to work in the U.S. under an H1-B, O, L-1 or other visa, as well as foreign national visitors, those employed by business partners, graduate assistants and other researchers and student interns. The deemed export rule does not apply, however, to foreign nationals who have become naturalized U.S. citizens; those who are legal permanent residents of the U.S. (have “green cards”). The rule applies equally to organizations with overseas operations, such as subsidiaries, JVs, affiliates, and other partners.

The sharing of or giving access to controlled technology, blue prints, formulations and the like with a foreign national during a meeting in a conference room, in an email or text message, in a Skype or phone call, are all considered to be a release under the deemed export rule. Therefore, just as an exporter of a commodity must determine whether its export controlled item is subject to licensing requirements or if it chooses to rely on an applicable export license exception, organizations that have controlled technology must similarly analyze whether a release of that technology, in whatever format and via whatever media, must also carefully analyze whether a deemed export license may be required before the release to the foreign national colleague can occur.

This week, a civil penalty settlement announcement made by the U.S. Department of Commerce, Bureau of Industry and Security (BIS), Office of Export Enforcement (OEE) gave organizations with controlled technology another reminder (perhaps a jolt for some) that violations of the deemed export rule are detectable and costly. In a press release, BIS announced that it reached a $115,000 civil settlement with a Santa Clara, California company resulting from five violations of the EAR’s deemed export rule.

The company’s violations included the unauthorized release of export controlled manufacturing technology to a Russian national engineer working at its U.S. headquarters. This occurred in 2007. The unauthorized release involved drawings and blueprints for parts, identification numbers for parts, and development and production technology. The information is used for a product in hard disk drive manufacturing. The controlled technology was stored on a server at the company’s headquarters. (Best Practice Tip: store controlled technology on U.S. servers only, not abroad and not in the cloud). The company “released” the controlled technology to its Russian national engineer by providing the employee with a login ID and password “that enabled him to view, print, and create attachments.” After that occurred, the company applied for a deemed export license from BIS, but continued to store controlled technology on its server and failed to take steps to deny access of the technology to its Russian national while the license application was pending.  This resulted in charges of knowingly violating the EAR on three occasions. Apparently, those applying for the license failed to inform the IT department to disable the engineer’s login or otherwise deny access to the controlled technology. In 2010, a similar release violation occurred when a Chinese national working in the company’s Shenzhen, China subsidiary accessed similar controlled technology on the company’s server in California using a login ID and password to open an attachment containing the technology.

The company voluntarily disclosed its violations to BIS. But it should be recalled that for many visa categories used to employee foreign nationals in the U.S. Part 6 of the I-129 requires the applicant to certify compliance with the EAR (and ITAR), including obtaining an export license when necessary and not releasing or giving access to the controlled technology to the foreign national employee. In other words, BIS and U.S. Citizenship and Immigration Services (USCIS) have information available to help detect and penalize deemed export violations in addition to information provided to BIS through a voluntary self-disclosure (VSD).

In announcing the penalty, BIS stated that the company’s failure to prevent access while the deemed export license was pending was considered to be an aggravating factor in determining the penalty. There can be no doubt that BIS is serious about protecting U.S. technology that is subject to export controls, enforcing the deemed export rule, and penalizing violators. “Deemed export compliance is a top priority for the Bureau of Industry and Security,” said David W. Mills, Assistant Secretary of Commerce for Export Enforcement. “Today’s settlement highlights the need for companies to be vigilant to prevent the unauthorized release of U.S. technology and data.”

The BIS case documents can be accessed here,http://1.usa.gov/1jCWCEk.

For assistance with understanding and complying with the deemed export rule, sections of the Export Administration Regulations (EAR) or other export controls and economic sanctions, as well as representation before BIS in investigations, civil penalty, and voluntary self-disclosure matters, please contact Jon P. Yormick, Esq., jon@yormicklaw.com or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.928.3474.

International Trade Presentations in Buffalo to Ring in the New Year!

International trade and business attorney, Jon Yormick, will discuss Export Control Reform (ECR) and economic sanctions in 2 separate presentations in Buffalo next month.

On January 15, the Law Offices of Jon P. Yormick Co. LPA is co-sponsoring a 2-hour workshop, Export Control Reform, Revisited, with Mohawk Global Trade Advisors and Daemen College. The event will be held at Daemen College, with check-in beginning at 8:30 am.  The program will run from 9:00-11:00 am. In addition to Jon, the workshop will feature Jim Trubits of Mohawk Global Trade Advisors, and Rae Perrott of Moog, Inc. They will discuss and share experiences with the recently implemented ECR from the perspectives of a global exporting company, a freight forwarder, and legal counsel. The focus will be on the transition of defense articles from the ITAR to the EAR, new AES documentation requirements, and tips for export compliance based on lessons learned from recent consent decrees. The cost is $35 and includes breakfast. For registration, contact Abby Frank at 315.552.3001 or at afrank@mohawkglobal.com.

Also on January 15, Jon will give a presentation at the Buffalo World Trade Association’s monthly dinner meeting. The BWTA was founded in 1921 and has the mission of expanding international business knowledge and activity of U.S. and Canadian companies in the Buffalo Niagara region.  In his presentation, Navigating Economic Sanctions Successfully, Jon will discuss economic sanctions regimes, OFAC General Licenses and TSRA licenses that give companies certain business opportunities within the U.S. sanctions regimes, and emphasize economic sanctions compliance, including lessons learned from recent OFAC and BIS civil penalty cases.  The meeting will be held at the Millennium Hotel, 2040 Walden Ave., with cocktails beginning at 5:30 and dinner at 6:30 pm. For registration and membership information, visit www.bwta.us.

Lost in the Headlines about FCPA Violations, one Northeast Ohio Company Settles an Export Control Civil Penalty Case

On October 22, the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) announced they had reached an agreement with Diebold, Inc. to settle allegations that the company violated the Foreign Corrupt Practices Act (FCPA). The ATM manufacturer, headquartered in North Canton, Ohio, settled with the DOJ and SEC by agreeing to pay nearly $50 million to resolve allegations that it violated the FCPA by bribing government officials in China and Indonesia and falsifying records in Russia in order to obtain and retain contracts to provide ATMs to state-owned and private banks in those countries. According to the DOJ press release, the company made payments and provided gifts and non-business travel to bank employees, recording leisure travel for bank employees as “training.” The DOJ acknowledged that Diebold cooperated in the investigation, including making a voluntary disclosure regarding the FCPA violations.

A few weeks later, in mid-November Cleveland-based Park-Ohio Holdings, Inc. stated in its quarterly SEC filing that it received a subpoena from the SEC in August in connection with a third-party and that the DOJ was conducting a criminal investigation of the third-party. According to the company’s SEC filing, the third-party paid a foreign tax official on behalf of the company in 2007 and that the activity “implicates” the FCPA. The country where the payment was made was not identified.

In the middle of those reports, on October 25, the U.S. Department of Commerce, Bureau of Industry and Security (BIS), released a settlement agreement and order relating to GrafTech International Holdings, Inc., with global headquarters in the Cleveland suburb of Parma. The company settled 12 proposed charges that it exported without required licenses, agreeing to pay $300,000.00 and complete an external audit of its export controls compliance program and those of three overseas operations. While the case did not result in eye-catching multi-million dollar penalties, it is noteworthy nonetheless.

BIS alleged that on four occasions between 2007 and 2009, GrafTech violated the export control regulations when it exported CGW grade graphite to China without an export license. The graphite was classified under ECCN 1C107.a and controlled for missile technology reasons. The shipments had a value of approximately $276,000.00. BIS also alleged that on eight occasions between 2007 and 2010, GrafTech exported CGW grade graphite to India, without required export licenses. The value of those shipments totaled approximately $248,000.00. The settlement agreement stated that GrafTech made a voluntary self-disclosure regarding the violations. Notably, in April 2010, BIS, Office of Technology Evaluation, issued Critical Technology Assessment: Fine Grain, High Density Graphite which addressed U.S. export controls, among other key topics. That report can be found here.

As mentioned, in addition to the $300,000.00 penalty, GrafTech agreed to complete an external audit export controls compliance program and the compliance programs’ three subsidiaries, located in France, Italy, and South Africa. The settlement agreement and BIS order did not detail the involvement of the subsidiaries in the violations, if any, but it can be presumed that the company’s export controls compliance program at each location were a concern to BIS.

According to the terms of settlement, GrafTech must hire a third-party consultant with expertise in U.S. export control law to conduct the audit with respect to all exports and re-exports of items on the Commerce Control List (CCL). The audit must cover a twelve-month period preceding the date of the order and must be delivered to BIS within eighteen (18) months. The order also requires the company to identify actual or potential violations by any of the four entities being audited, including the directive that GrafTech “promptly provide copies of the pertinent air waybills and other export control documents and supporting documentation” to BIS.

Why there is an apparent recent rash of enforcement actions involving Northeast Ohio companies doing business globally is a mystery. Certainly, these revelations should be a “wake-up call” for companies in the region that conduct business globally and have global operations. More broadly, of course, these reports emphasize the need for all U.S. companies to re-double their FCPA and export control compliance efforts in order to avoid costly civil and criminal penalties, additional enforcement expenses, and the reputational harm that violations can cause.

For assistance with understanding and complying with the Export Administration Regulations (EAR) or other export controls and economic sanctions, as well as representation before BIS in investigations, civil penalty, and voluntary self-disclosure matters, please contact Jon P. Yormick, Esq., jon@yormicklaw.com or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.928.3474.

Sales Department Wake-up Call: Costly Antiboycott Violations Lurk in Documents and Communications

Violations of the U.S. Antiboycott sections of the Export Administration Regulations (EAR) tend to not get much attention compared to other violations of the EAR, such as those involving evasion, acting with knowledge, or aiding and abetting.  Antiboycott violations tend to lead to fewer civil penalty settlements with the Office of Antiboycott Compliance (OAC), Bureau of Industry and Security, U.S. Department of Commerce (BIS). When settlements are reported, they tend to be relatively minimal, but that might be changing in the wake of 2 settlements in the last several days.

In general, the OAC explains that the Antiboycott regulations “prohibit U.S. companies from furthering or supporting the boycott of Israel sponsored by the Arab League, and certain other countries, including complying with certain requests for information designed to verify compliance with the boycott.”  Sales forces of U.S. companies that are well-trained in export control compliance know that complying with these requests might be prohibited under the EAR and just the request to comply may be reportable to BIS.

The June 7, 2013 Proposed Charging Letter to the Director of Sales & Marketing Operations at one of the companies that recently settled its alleged Antiboycott violations seems to show that the sales teams (and maybe the Credit Department) at some  companies might not be knowledgeable enough about the Antiboycott regulations and compliance with them.  The first case involved a $32,000 settlement with the OAC on 16 violations occurring between 2009-11 – one violation of furnishing information about business relationships with boycotted countries or blacklisted persons and 15 violations of failing to report the receipt of requests to engage in a restrictive trade practice or foreign boycott against a country friendly to the U.S. aka Israel.  The company was alleged to be involved with selling or transferring goods or services from the U.S. to Bahrain, Oman, Qatar, and the UAE, all of which are generally friendly to the U.S. as well.

A table attached to the Proposed Charging Letter shows that the company provided information in a transport certificate for Oman stating “…the ship is permitted to enter Port Sultan Qaboos, in accordance with the Laws of Sultanate of Oman.”  The company failed to report boycott compliance requests from Bahrain and Oman found in various transaction documents (possibly emails) and letters of credit.  The requests included requests to ensure that the company “Delete all products, manufactured in Israel as they are banned in Bahrain,” or noting that “All Produce of Israel are Banned” and that the shipping company or agent was to issue a certificate that the ship was permitted to enter Muscat or Sultan Qaboos.

The second settlement with OAC involved 63 violations of the Antiboycott regulations – 5 for furnishing information and 58 for failing to report requests to comply with the boycott. This case was settled for $56,000.  The 5 violations of furnishing information arose from emails and invoices, each confirming certain parts sold to a UAE party were not made in Israel.  Additionally, 57 sales orders from the UAE and one from Malaysia each requested that the U.S. company cancel portions of the order because parts originated from Israel, requested substitute parts, confirm that parts were not made in Israel, of otherwise made clear that Israeli-origin products were prohibited.

As with all civil penalty settlements that are released to the public, these recent settlements with the OAC should be a “wake up call” for U.S. companies doing business in the Middle East and in other countries that support the Arab League boycott against Israel.  The failure to train the sales and credit teams on identifying boycott requests, properly analyzing those requests for potential reporting to the OAC and complying with the U.S. Antiboycott regulations can be costly in terms of penalties and reputational harm.

For assistance with understanding and complying with the Antiboycott regulations, other provisions of the Export Administration Regulations (EAR) or other export controls and economic sanctions, as well as representation before BIS in investigations, civil penalty, and voluntary self-disclosure matters, please contact Jon P. Yormick, Esq., jon@yormicklaw.com or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.928.3474.

 

September Presentations will Highlight Export Control Compliance

Upcoming presentations by international business and trade attorney, Jon Yormick, will focus on Export Control Reform (ECR) and the “deemed export” rule.

On September 9, Jon will speak at the Ohio Foreign Commerce Association’s luncheon meeting.  His presentation on Preparing for Compliance and Enforcement Under Export Control Reform, will address the impact of ECR on a company’s export compliance program and how the enforcement landscape is changing with ECR.

In Albany, New York on September 20, immediately following the Annual Northern Border Update of the Upstate New York Chapter – American Immigration Lawyers Association, Jon will present at a day-long CLE conference, Where Immigration Meets Other Law.  The conference will be held at Albany’s historic Ft. Orange Club and is presented by the Upstate New York Chapter – AILA and the Albany County Bar Association.  Jon will present What Immigration Lawyers Should Know About Export Controls and explain  how business immigration counsel can effectively assist technology sector clients in meeting their export controls compliance burdens, including the I-129 Part 6 certification and the Department of Commerce, Bureau of Industry and Security’s enforcement of the “deemed export” rule.  He will be joined by Jim Trubits of Mohawk Global Trade Advisors.  Seating is limited.  For more information, please visit http://bit.ly/14TwonL or register now for this event at http://conta.cc/12CLwsa.

New York Company Settles AECA and ITAR Violations for $8M after Making Voluntary Self-Disclosures: The Cost of Failing to Properly Determine Export Control Jurisdiction

A Long Island, New York company, Aeroflex, Inc., has entered into an $8 million settlement with the U.S. Department of State for an estimated 158 alleged violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR).

According to the nearly 18-page long Proposed Charging Letter, the Department considered the series of voluntary disclosures submitted by the company and its remedial compliance measures as “significant mitigating factors” in deciding the charges to pursue.  The Department, however, found that there were significant national security interests involved and systemic and longstanding violations, including improper product classifications, and decided to charge the company with an estimated 158 violations for unauthorized exports based on information contained in the voluntary disclosures.

The Department found that the “violations were caused by inadequate corporate oversight and demonstrate systemic and corporate-wide failure to properly determine export control jurisdiction over commodities,” leading to “the unauthorized exports and re-exports of ITAR-controlled electronics, microelectronics, and associated technical data; and caused unauthorized exports of ITAR-controlled microelectronics by domestic purchasers.”

The 158 alleged violations included: 32 unauthorized exports of ITAR-controlled microelectronics and electronics, including to NATO and other allied countries; 96 unauthorized exports of ITAR-controlled microelectronics to China; causing 18 unauthorized exports of defense articles when the company and its subsidiaries “sold ITAR-controlled radiation tolerant multipurpose transceivers to domestic buyers who exported the transceivers without Department authorization,” due to Aeroflex’s incorrect jurisdiction determination; causing 7 unauthorized exports of defense articles to China by exporting “ITAR-controlled microelectronics to foreign entities who then re-exported these defense articles to the People’s Republic of China without Department authorization,” again due to making incorrect jurisdiction determinations; causing an unauthorized export of defense articles when it sold ITAR-controlled integrated circuits to the UAE for end-use on satellite projects in India, knowing the items would be re-exported without Department authorization; and misused the ITAR Canadian exemption 4 times when it exported radiation hardened microelectronics to Canada without Department authorization.

Despite the company-wide failures noted in the Proposed Charging Letter, Aeroflex and its subsidiaries apparently did make some efforts at export controls compliance – they were just badly misguided.  The company apparently relied primarily on “commodity classification guidance from the Department of Commerce in reviewing the export control status of its microelectronics and electronics,” but failed to understand that Commerce can only properly classify items and technology that are subject to the Export Administration Regulations (EAR).

In other words, Aeroflex often skipped over the critical first-step in the export control analysis which is to determine jurisdiction over the commodities, technology, and software involved – whether jurisdiction lies with the Department of State or the Department of Commerce.  Only after this determination is made, can classification be determined.  The Proposed Charging Letter noted that while “companies may self-classify an article or service, it is to their advantage to seek a [Commodity Jurisdiction] CJ determination where a company has doubts” about whether an article or service is covered by the U.S. Munitions List and, therefore, falls under the jurisdiction of the Department of State.

Making the proper jurisdiction determination is highlighted not only by this settlement, but by Export Control Reform (ECR), which, in a little more than 60 days, will cause a shift in jurisdiction from the Department of State to the Department of Commerce for certain aircraft parts and components and gas turbine engines.  Companies should be well into their reviews of how ECR will impact their exports.  And as the Aeroflex settlement shows, incomplete or incorrect analyses of jurisdiction can lead to costly violations.  Companies should not assume that jurisdiction will shift for their items and technologies under ECR.  Whether affected by ECR or not, companies should use this settlement as a reminder to review jurisdiction regularly or to perform that in-depth analysis for the first time before “systemic and longstanding violations” occur.  There really are no short-cuts to be taken with export controls.

Lying to Federal Investigators Leads to 15 Year Denial of Export Privileges

“Honesty is the best policy” is an age-old adage, attributed to patriot Benjamin Franklin, but one not followed by a couple who recently had their export privileges denied by the Department of Commerce, Bureau of Industry and Security (BIS).  BIS administers and enforces U.S. commercial export control laws and regulations, the Export Administration Regulations (EAR).  The EAR is often said control “dual use” items and technologies, meaning those goods and technologies that have both commercial and military applications.

According to a pair of July 16 Orders and underlying settlement agreements, Yaming Nina Qi Hanson and her husband, Harold Hanson, made false or misleading statements to a BIS special agent and an FBI special agent during January, 2009 interviews.  The interviews were part of an investigation of unlicensed exports to China of 20 miniature unmanned aerial vehicle (UAV) autopilots.  Qi Hanson stated that several university classmates in China provided her with $75,000 to purchase the autopilots from a Canadian seller, knowing this was false.  In truth, the president of Xi’an Xiang Yu Aviation Technical Group in Xian, China had provided the purchase money.  Meanwhile, Harold Hanson stated to investigators that he did not provide the Canadian seller with an end-use of the autopilots.  In truth, he had sent emails to the company stating the autopilots would be used for studying thunderstorm and tornado development in the Great Plains, knowing the autopilots were to be exported to China.

The denial order prohibits the Hansons from being involved, directly or indirectly, in any transaction involving the export of commodities, technology, or software from the U.S. that is subject to the EAR for 15 years.  The complete details of the denial orders can be found on the BIS website at http://1.usa.gov/14uUgmr.

The denial order represents a BIS administrative penalty in a case that included the Hansons pleading guilty, in 2009, to criminal charges of making false statements regarding the illegal exports.  A summary of the case is found in the BIS 2010 publication, “Don’t Let this Happen to You!” also found on the BIS website at http://1.usa.gov/15zw7HT.

Here, the (attempted) cover-up only served to aggravate the EAR violation.

For assistance with understanding and complying with the Export Administration Regulations (EAR) or other export controls and economic sanctions, as well as representation before BIS and in investigations, civil penalty, and voluntary self-disclosure matters, please contact Jon P. Yormick, Attorney and Counsellor at Law, jon@yormicklaw.com or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.928.3474.

 

Yormick Selected as Instructor for International Trade Certification Program

International business and trade attorney, Jon Yormick, will be an instructor for the International Trade Certification Program being offered jointly by the World Trade Center Buffalo Niagara and Speed Global Services.  Business leaders completing the 10-week program will earn Advanced Certification in International Commerce & World Trade Center Trade Expert (TE) Accreditation.

Yormick will teach Module Two: Export Controls, Customs and Documentation.  This module will focus on federal laws and regulations governing the export and import of goods and technologies and doing business abroad, including the Export Administration Regulations (EAR), the International Traffic in Arms Regulations (ITAR), the Foreign Corrupt Practices Act (FCPA), the Customs Modernization Act (the Mod Act), and economic sanctions programs administered and enforced by the Office of Foreign Assets Control (OFAC).

The International Trade Certification Program runs from September 11 through November 13, 2012.  Classes will be held each Tuesday afternoon from 1:00 – 5:00 PM at Speed Global Services.  For more information and to register, please visit www.speedgs.com or www.wtcbn.com.

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