Export Control News & Alerts

The Export Control Update Newsletter
November 2007

CONTENTS

1. Sudanese Sanctions Regulations Amended
2. Bush Signs IEEPA Enhancement Act
3. Hamburger Woolen Company Accepts $110,000 Penalty
4. OFAC Clarifies Rules Related to Iranian Banks
5. Brazilian Retransfer of Thermal Imaging Camera Gets Stiff Penalty
6. Here’s Proof the UK Has Real Brokering Rules: A Man Goes to Prison
7. Clarification of QRS-11 Jurisdiction
8. Night Vision Camera Export Gets Prison Time
9. Chevron Nailed for Misconduct in Iraq Oil for Food Program
10. Reexport of Pipe to Iran Gets $100,000 Fine
    
11. Export Compliance Job Opening

1. Sudanese Sanctions Regulations Amended

On October 31, 2007 the Sudanese Sanctions Regulations were amended to partially lift the prohibitions imposed across the country. The blocking and asset freezing of denied entities will remain in effect and unchanged as will the prohibitions involving petroleum and petrochemical industries throughout all of Sudan.

The following areas have been taken off of the prohibited list:

• Southern Sudan, Southern Kordofan/Nuba Mountains State
• Blue Nile State
• Abyei
• Darfur
• 4 official camps for internally displaced persons in Khartoum

This will allow for export/import trade activities involving goods, services and technology to the above mentioned areas without a license. If the transaction involves property or assets held by the government of Sudan or a denied persons, relates to Sudan’s petroleum or petrochemical industry, or involves transshipment through regions of Sudan that are prohibited, a license must be obtained from OFAC.

More information:

OFAC news release

— Danielle McClellan

2. Bush Signs IEEPA Enhancement Act

On October 16, 2007 President Bush signed into law the International Emergency Economic Powers (IEEPA) Enhancement Act to enhance administrative and criminal penalties that can be imposed under the IEEPA. IEEPA currently is the underlying law that authorized the Export Administration Regulation (EAR) controls on commercial and dual use items. Certain aspects of the act have been amended to explain penalties that may be assessed for unlawful acts.

The Enhancement Act amends the current IEEPA by clarifying that civil penalties may be assessed against those who conspire to violate, or cause violation of any license, order, regulation or prohibition of the United States Code. Violators can now be fined up to $1,000,000 and/or up to 20 years in prison for criminal penalties. Criminal liability will also be included, and is described as anyone who “willfully conspires to commit, or aids or abets in the commission of” an unlawful act. Any criminal enforcement actions commenced on or after October 16, 2007 will be subject to the new penalties. Civil penalties will result in a fine amounting to the greater of $250,000 or twice the value of the transaction that is the basis of the violation. Any civil enforcement actions that are pending, meaning a Final Order has not been signed, or commenced on or after October 16, 2007 will be under the new civil penalties.

There are however, five circumstances that will be general exceptions to the IEEPA Enhancement Act. Those practices will include:

• Cases that settle before filing of a charging letter with an Administrative Law Judge, BIS usually charges only the most serious violation per transaction.
• Cases that settle before filing of a charging letter with an Administrative Law Judge BIS may also charge each violation not directly connected to a specific export or antiboycott related transaction which may include conspiracy, evasion, or false statements made to a Special Agent.
• If BIS chooses to file a charging letter with an Administrative Law Judge because of mutually agreeable settlement cannot be reached, then BIS will reserve its right to proceed with all available charges based on th4e facts presented.
• BIS draws meaningful distinctions based upon the relative seriousness of any offense. More serious offenses result in higher penalties for the purposes of settlement discussions.
• BIS affords great weight mitigation of up to a 25% reduction of the amount of penalties to be assessed for the existence of an effective export compliance program in place before the violation and later upgraded.
• For all valid Voluntary Self-Disclosures, BIS gives great weight mitigation that generally results in a reduction of at least 50% of the calculated penalty-and does so after considering the aggravating and mitigating factors in the case.

Mario Mancuso, Secretary of Commerce for Industry and Security, explains that, “The new law provides significant additional support for our cases, which we intend to apply in an equitable, deliberative and rigorous way. Most important, we think the enhancements will better align incentives to improve overall compliance with our regulations.”

More information:

BIS Factsheet: Charging and Penalty Practices (PDF)

BIS news release

— Danielle McClellan

3. Hamburger Woolen Company Accepts $110,000 Penalty

This New York based company that constructs police equipment and fabricated uniforms has been convicted of 20 violations of the Export Administration Regulations and the Export Administration Act of 1979.

From August 2001 to February 2005 the company exported restraint devices to England and Germany with the required Department of Commerce licenses. During the same timelines Hamburger Woolen Company made false statements to the U.S. Government in connection with the submission of export control documents. The company claimed that the restraint devices were “NLR” and no license was required to export per their filed Shipper’s Export Declarations.

A civil penalty was assessed at $110,000 against Hamburger Woolen Company for the violations committed. They will not be debarred as long as their penalty is paid as agreed per their settlement agreement with the Department of Commerce.

More information:

BIS Order (e2014.pdf) (PDF)

Hamburg Woolen Website

— Danielle McClellan

4. OFAC Clarifies Rules Related to Iranian Banks

By: Danielle McClellan

As of October 25, 2007 all U.S. persons are prohibited from engaging in any transactions with Bank Sepah, Bank Mellat, and Bank Saderat and each of the banks’ subsidiaries. Persons holding valid OFAC licenses are also prohibited from exportation or reexportation of agricultural commodities, medicine or medical devices to Iran or Sudan that would directly or indirectly involve the above listed banks.

In January 2007 Bank Sepah and its subsidiary Bank Sepah International PLC were designated pursuant of “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters”.

In October 2007 Bank Mellat and its branches and subsidiaries, Mellat Bank SB CJSC, Persia International Bank PLC, Bank Melli, Bank Kargoshaee, Bank Melli Iran Zao, Melli Bank PLC, and Arian Bank were also found pursuant of “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters.”

During October 2007 Bank Saderat and its branches were designated pursuant to “Blocking Property and Prohibiting Transactions With Person Who Commit, Threaten to Commit, or Support Terrorism.”

More information:

Executive Order: Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters

OFAC news release

— Danielle McClellan

5. Brazilian Retransfer of Thermal Imaging Camera Gets Stiff Penalty

On February 26, 2007 S.P. Equipamentos de Proctecao ao Trabalho Ltda., of Sao Paulo, Brazil was charged with selling one thermal imaging camera to the Military Police of the State of Rio de Janeiro. Doing so violated a condition of the companies export license which forbade the “resale, reexport, or transfer of the thermal imaging camera to any party other than that listed on the license without approval from the U.S. Government.” Accordingly, because they knew that this was a violation they were charged with Acting with knowledge of a violation of the regulations. Therefore the BIS charged S.P. Equipamentos de Proctecao ao Trabalho Ltda with 2 violations.

The company was then denied export privileges for a period of 10 years because of failure to file a timely answer to its charging letter, putting the company in default causing such a long debarment. On November 5 2007 the Secretary for Industry and Security, Mario Mancuso, vacated the Final Decision and Order after reading a petition and supporting materials set forth by S.P. Equipamentos de Proctecao ao Trabalho Ltda. The petition justified good cause and there was no opposition to its findings according to Mario Mancuso. The company’s exporting privileges have now been restored.

More information:

BIS Decision and Order (e2015.pdf) (PDF)

— Danielle McClellan

6. Here’s Proof the UK Has Real Brokering Rules: A Man Goes to Prison

The first prosecution under the new UK export laws has been recognized. The new laws were designed to prevent the uncontrolled movement of arms by British nationals between countries outside the UK. The laws carry a maximum of 10 years in prison and cover the movement of military and security goods.

John Knight was sentenced to four years in prison after he pled guilty to the illegal sale of 130 MPT 9 machine guns in the Middle East. He was to supply the guns to Kuwait via a procurement company. Knight applied for a license from the Export Control Organization to move the 130 guns, but posted them as MP5 A3 machine guns. None the less his license was denied and later his appeal was denied.

Knight continued with the shipment moving the guns from Iran to Kuwait and even laid a paper trail to make it seem as though he had left the deal. He received $120,000 on account from the Kuwaiti Ministry of the Interior for the machine guns.

When the shipment arrived to Kuwait it was intercepted by the Kuwait Customs Service. Later a search of Mr. Knights home revealed evidence that supported he was involved in the unlicensed export of the guns. Officials were able to uncover documents from Knight’s shredder that led to his conviction.

More information:

Article from BERR (Department for Business Enterprise & Regulatory Reform)

— Danielle McClellan

7. Clarification of QRS-11 Jurisdiction

Effective November 7, 2007, the Department of Commerce will control the licensing of the QRS11-00100-100/101 and the QRS11-00050-443/569 Micromachined Angular Rate Sensors. The Department of State previously held the licensing jurisdiction for the sensor, as it was found on the United States Munitions list. Many industry inquiries about incorporating the part into civil automatic flight control systems and standby systems led to its removal from the Munitions List causing the part to no longer be under the jurisdiction of the state. The instrument systems, automatic flight control systems and the aircraft which would house the sensor will remain subject to the EAR.

More information:

Federal Register Notice

— Danielle McClellan

8. Night Vision Camera Export Gets Prison Time

In June of 2004 Philip Cheng was indicted by a federal grand jury on charges of conspiracy to violate the federal Arms Export Control Act and the International Traffic in Arms regulations, brokering the illegal export of defense articles and services, and three counts of money laundering. Cheng illegally exported a night vision camera and its accompanying technology to China.

A trial in February and March of 2006 ended in a hung jury. After this, Mr. Cheng agreed to resolve the case through a guilty plea to willful illegal brokering of the night vision cameras to China.

On December 3, 2007 Philip Cheng was sentenced to two years in prison and ordered to pay a $50,000 fine for his role in the illegal export of night vision goggles to China without obtaining the required authorization from the United States Department of State.

More information:

California Export Broker Sentenced to Two Years for Illegally Exporting National Security-Sensitive Technology to China (examiner.com)

— Danielle McClellan

9. Chevron Nailed for Misconduct in Iraq Oil for Food Program

On November 14, 2007 the United States Attorney for the Southern District of New York and the Securities and Exchange Commission announced that an agreement had been reached with the Chevron Corporation involving the company’s alleged misconduct involving the United Nations Oil-for-food Program.

The SEC claims that Chevron failed to maintain adequate internal controls when it relied on its trader’s representations and certifications from the third parties. The company also violated the Foreign Corrupt Practices Act when it incorrectly recorded the surcharge payments to Iraq as premiums. These charges arose from allegations that Chevron purchased oil from third parties who paid secret, illegal surcharges to the former government of Iraq. Now whether or not the Chevron Corporation was aware of these undisclosed payments to Iraq is unknown.

Chevron had a policy implemented to ensure that these type of instance would not occur; the company in fact required that trader obtain prior written approval for all proposed Iraqi oil purchases from the company’s Director of Global Crude Trading. When a third party purchase was approved, party was required to certify that no illegal payments had been make or would be made in the connection with its acquisition of Iraqi oil.

In four separate instances the SEC alleges that the above-mentioned policy was not followed, resulting in transgression. In one instance, Chevron purchased oil from a small company in Switzerland who had no experience in the oil business, no real business operations and no assets; Chevron still purchases oil from the company on two separate occasions and each purchase included an illegal surcharge passed onto Chevron as an inflated premium. On another occasion, the SEC claims that a trader who is responsible in large of the company’s purchases from Iraq factored the cost of the surcharge into price negotiations with third parties. In addition, the SEC alleges that one of the third party sellers said that the Chevron trader asked him to persuade Iraq to reduce the amount of its surcharges. Lastly, it is assumed that Chevron should have known that it was paying premiums when it approved the Iraqi oil purchases even though there were obvious increases in premiums.

Under the Non-prosecution Agreement with Chevron the U.S. Attorney agreed that the company would not be prosecuted in exchange for $30 million in payments which include:

1. Forfeiture of $20 million to the U.S. Attorney’s Office who will then transfer the money to the Development Fund of Iraq, to be paid as restitution for the benefit of the people of Iraq;
2. $5 million to the New York County District Attorney’s Office;
3. $2 million to the Department of the Treasury’s Office of Foreign Assets Control; and
4. $3 million to be paid to the Securities and Exchange Commission.

More information:

SEC news release

—Danielle McClellan

10. Reexport of Pipe to Iran Gets $100,000 Fine

Proclad International Pipelines, Ltd. has been fined $100,000 for export violations. The Scotland based company manufactures pipes used in the oil and gas, power generation, energy, aerospace, petro-chemical and marine engineering industries world wide.

In 2004 the company attempted to export nickel alloy pipes, which are subject to both the Regulations and the Iranian Transactions Regulations. The pipes must have required authorization to be exported from the United States to Iran through the United Arab Emirates. The pipes were declined by a freight forwarder because there was no evidence that the goods were authorized by the U.S. Government to be shipped to Iran. This act alone caused Proclad to be charged with four violations including conspiracy to violate the regulations.

During March and April of 2004 Proclad was in the course of an investigation subject to the Regulations, they were found to be making false statements and/or representations to the BIS’s Office of Export Enforcement concerning the nickel alloy pipes causing two more charges.

Over the course of the entire investigation Proclad was charged with 10 violations:

• Causing, Aiding or Abetting a Violation of the Regulations
• Conspiracy to Violate the Regulations
• Ordering Nickel Alloy Pipes with knowledge that a violation of the Regulations is Intended to Occur
• Taking Actions with the Intent of Evading the Regulations
• Misrepresentation and Concealment of Facts

The company was not only fined the civil penalty of $100,000 but has also been debarred for seven years from any transactions involving any commodity, software or technology exported or to be exported from the United States that is subject to the Regulations. Proclad, its officers, representatives, agents, and employees will be considered “Denied Persons.”

More information:

BIS Order (e2021.pdf) (PDF)

Proclad Website

— Danielle McClellan

11. Job Opening: ITAR Export Control Officer

Pilatus Aircraft Ltd has a job opening for an Export Control Officer (ITAR). To view the job details and apply online, go to the job description on Pilatus website.

 

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