DDTC Publishes Statutory Debarment List

The State Department's Directorate of Defense Trade Controls (DDTC) published a notice in today's Federal Register (pdf) listing the 53 companies and individuals that have been statutorily debarred from participating in ITAR-related transactions as a result of being convicted of violating or attempting to violate the Arms Export Control Act.

Persons subject to statutory debarment are prohibited from participating directly or indirectly in the export of defense articles, including technical data, or in the furnishing of defense services for which a license or other approval is required.

Exporters of defense articles, ITAR controlled technical data and defense services must check the statutory debarment list (and the other restricted party lists maintained by BIS and OFAC) to ensure that no person or company named on this list is involved in a proposed transaction.

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BIS Imposes $70,000 Civil Penalty on NY Freight Forwarder for Entity List Violation

Yet another company has been fined by the Bureau of Industry and Security (BIS) for an export-related violation involving a party on the Entity List.

Today BIS posted the settlement documents involving Eastways Shipping Corporation, a New York City-based freight forwarder. Eastways agreed to pay a $70,000 civil penalty ($23,333 per violation) for allegedly arranging for the export of scrap metal worth $95,335 to Allied Trading Company, a company in Karachi, Pakistan that is included on the Entity List. The scrap metal involved in these transactions was classified as EAR99.

As a result of its actions, BIS charged Eastways with three counts of aiding and abetting an act prohibited by the Export Administration Regulations (EAR) since the scrap metal was apparently exported to Pakistan without the required export licenses.

The Entity List, established in 1997 and modified periodically, is found in Supplement No. 4 to Part 744 (pdf) of the EAR. The Entity List includes non-U.S. businesses, research institutions, government and private organizations, individuals, and other types of entities whose activities are contrary to U.S. national security and/or foreign policy interests.

The inclusion of a party on the Entity List notifies exporters that certain exports and reexports to parties identified on the Entity List require an export license from BIS and that the availability of License Exceptions in such transactions is limited. The Entity List also includes the license review policy for each part listed. In some cases, there is a presumption that an export license will not be granted.

In this case, the Entity List states that for Allied Trading Company the license review policy is "case-by-case for all items listed on the CCL" and that there is a "presumption of approval for EAR99 items." Because the scrap metal was classified as EAR99, it appears likely that BIS would have approved the export license application submitted by the exporter in this case. BIS has yet to post the civil penalty against the exporter that attempted to sell the scrap metal to Pakistan.

This case once again demonstrates the need for all parties in U.S. export transactions to screen all of the customers and end-users against the Entity List and the other restricted party lists maintained by the U.S. Government.

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OFAC Imposes $5.75 Million Penalty on Bank for Violating U.S. Embargoes on Sudan and Cuba

The Treasury Department's Office of Foreign Assets Control (OFAC) today announced that the Australia and New Zealand Banking Group, Ltd. of Melbourne, Australia (ANZ), remitted $5,750,000 to settle allegations that it violated the Sudanese Sanctions Regulations and the Cuban Assets Control Regulations related to the processing of transactions through U.S. correspondent accounts.

OFAC alleged that ANZ "actively manipulated the SWIFT messages related to the Sudanese transactions by removing references to Sudan or the names of entities subject to sanctions in the United States, thereby concealing the identities of the targets of U.S. sanctions and impeding the ability of U.S. banks to detect these violations." OFAC's announcement did not discuss the alleged violations of the Cuban Assets Control Regulations.

This settlement involved 16 transactions totaling $28 million involving alleged violations of the Sudanese Sanctions Regulations and 15 transactions worth $78 million involving alleged violations of the Cuban Assets Control Regulations. All of the transactions occurred between 2004 and 2006.

In its announcement, OFAC indicated that it mitigated the total potential penalty based on ANZ's cooperation and stated that:

Although ANZ did not voluntarily self-disclose the apparent violations of the Sudanese Sanctions Regulations, ANZ substantially cooperated with OFAC by conducting an extensive review of transactions. This review identified additional apparent violations of the Sudanese Sanctions Regulations of which OFAC was not aware, as well as apparent violations of the Cuban Assets Control Regulations, which ANZ voluntarily self-disclosed to OFAC.

As part of its remedial response, ANZ re-engineered its current operating model to enhance its ability to identify and resolve operational gaps and weaknesses. ANZ enhanced key OFAC procedures and policies to establish more effective controls with respect to potential OFAC violations. As part of its settlement with OFAC, ANZ has agreed to examine and, as necessary, further revise its policies and procedures to ensure, to the best of its ability, that transactions that would be in violation of OFAC’s regulations are not processed by or through United States financial institutions. ANZ will report findings of its examination to OFAC. The Australian Prudential Regulation Authority, ANZ’s primary Australian regulator, has agreed to review the results of the examination conducted by ANZ and monitor the resolution of any adverse findings.

In a statement issued by ANZ following OFAC's announcement, Chris Page, the bank's Chief Risk Officer said: “ANZ recognises that during the 2004 to 2006 period, the Bank’s compliance with US economic sanctions did not meet the high standards we expect" and that the bank "worked hard with regulators over the past three and a half years to comprehensively address the issues identified. This has included more robust policies and procedures, and a Group-wide sanctions compliance training program for staff.”

ANZ's statement noted that the measures taken by ANZ to strengthen compliance with economic sanctions have included:

• Strengthening management and compliance oversight including new approval procedures.
• Establishing additional full time roles dedicated to sanction compliance.
• Enhancing sanction compliance awareness training.
• Undertaking technology investments to upgrade automated sanction filters

The statement also confirmed that OFAC applied the increased penalties imposed by the IEEPA Enhancement Act "applied to the matters ANZ had disclosed to OFAC and that were then pending a decision by OFAC." (Although it should be noted that the IEEPA Enhancement Act penalties do not apply to violations of the Cuban Assets Control Regulations.)

Finally, ANZ stated that the "Australian Prudential Regulation Authority (APRA) has been kept informed of ANZ’s US economic sanction review, its remediation program and the dialogue with US regulators and APRA will continue to review the resolution of final remediation actions."

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Cracking Down on Iran's Illicit Trade

Michael Jacobson, a senior fellow in the Washington Institute for Near East Policy's Stein Program on Counterterrorism and Intelligence, today published a policy paper entitled "Cracking Down on Iran's Illicit Trade."

The policy paper recommends that "strengthening the export control regime to prevent Iran from easily circumventing U.S. and international sanctions should be a key part" of the Obama Administration's recently announced review of the U.S. export control system.

Among other things, Jacobson describes the increased U.S. enforcement of export control violations involving Iran and discusses ways in which these efforts have fallen short. For example, he notes that while the "main challenge for U.S. export control efforts is on the international front, problems closer to home exist as well:

• Despite the presence of a national export control coordinator, no agency is officially in charge of U.S. government export control efforts, with responsibility spread between State, Justice, Treasury, Commerce, and DHS;


• The main statute governing this issue -- the Export Administration Act (EAA) -- has expired, forcing the United States to temporarily operate under the International Emergency Economic Powers Act, which does not allow for the full set of tools that the EAA provided;


• Sentences in export control cases are often light, in part because judges do not always view them as serious national security issues. Adding to this prevalent perception is the fact that export control offenses are not in Title 18 of the U.S. Code, where the vast majority of crimes are found."

The policy paper concludes by noting that "success in the arena depends on better understanding how Iran is procuring illegal goods -- with its various front companies and agents around the world -- and mobilizing other countries to move forward on this front."

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Despite Reports U.S. Export Control Policy on Syria Remains Unchanged

The Bureau of Industry and Security (BIS) recently posted an updated version of it guidance and frequently asked questions involving U.S. exports to Syria. The bottom line: Despite many news reports to the contrary, U.S. export controls involving Syria remains unchanged.

As we previously reported several weeks ago, various news reports, including an article in the New York Times, indicated that the U.S. Government was easing or lifting sanctions on Syria. While the Obama Administration has indicated that it will "process all eligible applications for export licenses to Syria as quickly as possible," the current export licensing requirements to Syria remain unchanged.

Here is the summary of the current restrictions on Syria that was recently posted by BIS:

BIS requires a license for the export or reexport to Syria of all items subject to the Export Administration Regulations (EAR), except food and medicines not on the Commerce Control List (CCL). Pursuant to the waiver authority exercised by the President in Executive Order 13338, BIS may consider several categories of items on a case-by-case basis including medicines on the CCL and medical devices; parts and components intended to ensure the safety of civil aviation and the safe operation of commercial passenger aircraft; and telecommunications equipment and associated computers, technology, and software. License applications for other exports and reexports to Syria are subject to a general policy of denial.

In our experience, BIS and the other U.S. government reviewing agencies involved in the export licensing process have consistently approved licenses to export controlled medicines and medical devices to Syria on a regular basis and in a fairly timely manner (much faster than OFAC's processing of TSRA licenses for Iran and Sudan). The only question is whether the U.S. will begin issuing licenses for the export of aircraft components, telecommunication products and other types of eligible products faster than it has in the past.

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Latest Posts on Recent BIS Export Enforcement Cases Updated

Yesterday's blog posts on the BIS export control enforcement cases involving RFMD and FMC have been updated to include additional information contained in the proposed charging letter and settlement agreements that were posted yesterday afternoon (see posts below).

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BIS Imposes Civil Penalties on U.S. Exporter and Export Controls Compliance Employee

The Commerce Department's Bureau of Industry and Security (BIS) has imposed a civil penalty on a U.S. manufacturer and an employee with export control compliance responsibilities for unlicensed exports of high performance semiconductor components to China.

RF Micro Devices, Inc. (RFMD), a Greensboro, N.C.-based manufacturer of high-performance semiconductor components, has agreed to pay a $190,000 civil penalty to settle allegations that it exported spread-spectrum modems in violation of the Export Administration Regulations (EAR) to the People's Republic of China. The unique aspect of this case, which was voluntarily disclosed by RFMD, is that BIS also imposed a $15,000 civil penalty on a RFMD manager with export compliance responsibilities for making false and misleading statements to BIS Special Agents during the investigation of RFMD.

BIS alleged that during 2002 and 2003 RFMD made 14 unlicensed exports of spread-spectrum modems, classified under Export Control Classification Number (ECCN) 5A001, to the People’s Republic of China with knowledge that a violation of the Regulations was occurring, was about to occur or was intended to occur in connection with the spread-spectrum modems. In addition, BIS alleged that on 13 occasions RFMD made false or misleading statements in connection with the submission of Shipper’s Export Declarations (SEDs). ECCN 5A001 covers controlled telecommunications systems, equipment, components and accessories. Certain products classified in ECCN 5A001 are controlled for National Security reasons and require an export license to China.

BIS also alleged that, in 2004, a RFMD manager with export control compliance responsibilities told a BIS investigator that an outside export control consultant had confirmed that RFMD’s products were not export-controlled to any region where the company was marketing or selling its products. However, BIS alleged that the RFMD manager "had been repeatedly advised that certain RFMD products may have been classified under the Commerce Control List and that these products may have required an export license."

In announcing this case, Kevin Delli-Colli, the Acting Assistant Secretary of Commerce for Export Enforcement said that "unlawful shipment of state-of-the-art micro devices is a serious national security concern.” Delli-Colli also added that "companies that voluntarily disclose violations must provide truthful and complete information to investigators. Self-serving, false or misleading statements only serve to further undermine corporate credibility.”

This is one of the very few cases in which a company's export compliance manager has been assessed civil penalties in an export enforcement case.

Update: The proposed charging letter and settlement documents in this case can be found here (employee) and here (RFMD).

The proposed charging letter issued to RFMD indicates that the controlled products exported to China were RF3000 and RF3002 spread-spectrum modems, classified under ECCN 5A001, despite being advised by an export controls consultant that a review of the classification and export control requirements of such products were "a priority issue for the company". BIS also charged the company with "acting with knowledge" of violations since the company had been advised of the possible licensing requirements. RFMD was also charged with 14 counts of making a false statement on a SED (now EEI) by indicating that no license was required (NLR) to export the products from the U.S.

The proposed charging letter issued to the RFMD manager with "export control compliance" responsibilities indicated that the employee advised a BIS special agent that "she had been advised . . . by an outside export controls consultant that had been hired by RFMD, that all of RFMD's products were classified as EAR99 and were not export-controlled to any region in which RFMD was marketing or selling its products." The employee also had been advised by the outside export controls consultant "on multiple occasions . . . that RFMD's export control classification review was incomplete."As a result, the employee was charged with one count of making a false statement to BIS in the course of an investigation and agreed to pay a $15,000 penalty to settle the matter.

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