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.

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.

 

New York Dental Supply Company “Acting with Knowledge” Settles Iranian Transactions Regulations Charge

Last month, a family-owned dental supply company in New York settled a civil penalty with the Department of Commerce, Bureau of Industry and Security (BIS).  The amount of the civil penalty settlement was rather minimal – $8,750 – but the case is noteworthy nonetheless.

BIS proposed charging the company with a single count of violating the Export Administration Regulations (EAR), specifically 15 CFR § 764.2(e) – acting with knowledge that a violation of the EAR was about to occur or was intended to occur.  The settlement agreement explained that in 2008, the company sold dental products for export to Iran, via the UAE, without the required authorization to do so from the Department of the Treasury’s Office of Foreign Assets Control (OFAC).  The dental supplies were valued at $12,950 and were EAR99 items, meaning they were subject to the EAR, but not on the Commerce Control List (CCL).  Products designated as EAR99 generally do not require an export license from the U.S. Government; however, a license is required to certain destinations and Iran is certainly one such destination.

For companies and their legal counsel who may not be well-versed in this complex area of export controls and economic sanctions law, it should be noted that although the shipment was to be delivered in the UAE, because the supplies were ultimately destined for Iran, the Iranian Transactions Regulations (ITR) control this export transaction and others like it.  As stated in the settlement agreement, “an export to a third country intended for transshipment to Iran is a transaction that requires OFAC authorization.”

The settlement agreement went on to explain a frequently heard scenario in which the company initially made contact with the Iranian buyer at a trade show in Dubai.  In this instance, the New York company subsequently began to complete an OFAC license application to obtain authorization to export the products to Iran.  However, the application was never completed and submitted, so the company never obtained an OFAC license.  The company’s VP for Sales and Marketing explained to BIS Office of Export Enforcement (OEE) agents that the “OFAC license application was too complicated and time consuming,” so it was decided to proceed with the sale and attempt to export the products without the license.  Intentionally abandoning the OFAC license application, knowing that a license was required, led BIS to propose charging the company with one count of “acting with knowledge” in this instance.  Wisely, the company resolved the case by agreeing to pay the civil penalty within 30 days.  No other sanctions were imposed under the settlement agreement.

This settlement offers some instructive points for U.S. exporters and exporting foreign companies with a U.S. nexus.  First, it is a violation of the EAR and the ITR to sell and export products to an Iranian party via a transshipment destination, whether the UAE, Singapore, or any other country.  Second, certain EAR99 products can be sold and exported to Iran, provided a license from OFAC is obtained and the terms of that license are followed carefully.  Under the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA), companies can export certain EAR99 agricultural commodities, medicines or medical devices to Iran.  While the specific dental supplies in this case are not listed, other dental supplies are provided in BIS guidance (implants, dentures, crowns, instruments).  This means that the potential sale would likely have qualified for a TSRA license from OFAC.  While somewhat time-consuming for SMEs, has this New York company followed-through on completing the license application and submitting it, the outcome in this case likely would have led to an export success, rather than becoming another BIS civil penalty settlement to read and comment upon.

For assistance with understanding and complying with the Export Administration Regulations, the Iranian Transactions Regulations, or other export controls and economic sanctions, as well as representation before BIS and OFAC 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.

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