What happens if I violate export controls in the USA? (Jan – Dec 2019)
Ghaddar Machinery Co., SAL, in Lebanon Agrees to Pay a $368,000 Civil Penalty to Settle EAR Violations
The US Department of Commerce’s Bureau of Industry and Security (BIS) has announced that Ghaddar Machinery Co., SAL, in Ghazieh, Sidon, Lebanon, has agreed to pay a US$368,000 civil penalty (five instalments of US$100,000 no later than 30 days from the date of the BIS Order; US$67,000 not later than May 1, 2020; US$67,000 not later than November 1, 2020; US$67,000 not later than May 1, 2021; and US$67,000 and not later than November 1, 2021) to settle charges that it committed 20 violations of EAR § 764.2(a) ( Engaging in prohibited conduct by re-exporting items subject to the EAR to Syria without the required BIS licenses). Specifically, on twenty (20) occasions between on or about January 23, 2014, and on or about September 20, 2016, as described in additional detail in the Schedule of Violationsto the Settlement Agreement, Ghaddar engaged in conduct prohibited by the EAR when it reexported generator sets, items subject to the EAR and worth approximately US$736,236 in total, from Lebanon to Syria without the required BIS reexport licenses. At all times pertinent to the transactions at issue, the generator sets were designated EAR99 under the EAR and controlled for reexport to Syria. The generator sets were assembled in Lebanon incorporating US-origin engines and were subject to the EAR when reexported to Syria because they contained more than 10% of controlled US-origin content. Click here for a copy of the Settlement Agreement and related documentation.
State/DDTC: AeroVironment Inc, of Simi Valley, CA, Agrees to $1 Million Fine and Corrective Actions to Settle AECA and ITAR Charges
(Source: DDTC Penalties & Oversight Agreements) [Excerpts.]
* Respondent: AeroVironment, 900 Innovators Way, Simi Valley, CA
* Charges: Ten violations of the AECA and ITAR, consisting of unauthorized export of defense articles, to include technical data; failure to properly maintain records involving ITAR-controlled transactions; and violations of the provisos, terms, and conditions of export authorizations.
* Civil Settlement: $1 million fine ($500,000 suspended if spent on corrective actions)
* Debarred or Suspended from Export Transactions: Not if penalty is paid and corrective actions are completed as agreed.
* Result of Voluntary Self-Disclosure: Yes (14 VDs)
* Date of Order: 19 Nov 2019
* Available documents:
– Proposed Charging Letter: HERE
– Consent Agreement: HERE
– Order: HERE
* Mitigating Factors:
– Voluntary disclosure of violations.
– Waiver of Statute of Limitations
– Respondent’s self-initiated comprehensive remedial compliance measures before and during the course of government review.
– Respondent’s responsiveness and cooperation with DDTC.
– No indication that Respondent’s violations caused harm to U.S. national security.
* Aggravating Factors:
(a) A systemic lack of authorization management and attention to provisos, terms & conditions of export authorizations;
(b) an unknown number of instances where Respondent failed to properly maintain records as required by the ITAR; and
(c) the involvement of Significant Military Equipment (SME).
* Required Corrective Actions (CAs): (Excerpts.)
– Retain a Special Compliance Officers who will report directly to DDTC: SCO for 1 year, followed by Internal SCO for 1 year
– Perform a comprehensive jurisdiction/classification review of products and services.
– Incorporate CAs upon acquisition of any new business entity engaged in ITAR-regulated activities.
– Notify DDTC 60 days before sale of any entity engaged in ITAR-regulated activities and inform purchaser of CA requirements.
– Ensure adequate resources are dedicated to ITAR compliance, including lines of authority, staffing increases, performance evaluations, career paths, promotions, and compensation.
– VP/General Counsel to brief Board annually re findings and recommendations of ISCO.
– Retain independent consultant to conduct comprehensive audit of ITAR-regulated business operations.
State/DDTC: “Darling Industries, Inc. Fined $400,000 to Settle Alleged AECA and ITAR Violations, Including Failure to Appoint a Qualified Empowered Official”
(Source: State/DDTC, 28 Feb 2019.)
Darling Industries, Inc., of 3749 N. Romero Road, Tucson, AZ, settled allegations that it violated the International Traffic in Arms Regulations (ITAR) in connection with unauthorized exports of defense articles; provision of defense services; and failure to appoint a qualified Empowered Official.
Summary
* Respondent: Darling Industries Inc., 3749 N. Romero Rd., Tucson, AZ 85705
* Charges: Six violations of the Arms Export Control Act (AECA), and the International Traffic in Arms Regulations (ITAR), for unauthorized exports; unauthorized defense services; and failure to appoint a qualified Empowered Official (EO), between 9 Feb 2012 and 3 Mar 2014. A self-initiated compliance review described decades of systematic, reoccurring violations involving R.E. Darling’s manufacture and sale of ethylene propylene diene monomer compound (EPDM), a Kevlar-filled, raw material used as a missile case insulator and missile motor insulator, controlled under USML IV(h) and breathing hoses, controlled under USML VIII(h). EPDM is also designated on MTCR Annex, Category II- Item 3. Specifically:
– Violation of ITAR § 127.1(a)(1) by unauthorized exports of defense articles and furnishing of defense services to Canada for the production of Black Brant rocket motors.
– Violation of ITAR § 127.1(a)(1) by unauthorized exports of Cat VIII(h) breathing hoses to the UK and Italy.
– Violation of ITAR § 127.1(b)(1) by appointing an unqualified EO who did not meet § 120.25 requirements. “R.E. Darling’s Empowered Official was not in a position of having authority for policy or management within R.E. Darling’s organization, as required by 22 CFR 120.25(a)(1). Also, the Empowered Official did not understand the provisions and requirements of the various export statutes and regulations, as described in 22 CFR 120.25(a)(3).” Charging Letter, pp. 3-4.
* Civil Settlement: $400,000 ($200,000 will be suspended if penalty is paid and corrective actions are undertaken as agreed).
* Result of Voluntary Disclosure: Yes.
* Date of Order: 26 Feb 2019.
* Available documents: Proposed Charging Letter; Consent Agreement; Order.
* Mitigating Factors:
– Respondent submitted a Voluntary Disclosure.
– Respondent entered into an agreement with DDTC.
– Respondent instituted a number of self-initiated compliance program improvements.
* Aggravating Factors:
– Delayed disclosure (22 months after discovery of the violation).
* Corrective Actions (CAs) include:
– Incorporate CAs into any of future business acquisitions that are involved in AECA and ITAR-regulated activities.
– Notify DDTC 60 days before sale of any entity engaged in ITAR-regulated activities and inform purchaser of CA requirements.
– Ensure adequate resources are dedicated to ITAR compliance, including lines of authority, staffing increases, performance evaluations, and career paths.
– Appoint Internal Special Compliance Officer (ISCO) who will:
(1) Report directly to DDTC and to VP/GM;
(2) Conduct ITAR compliance review throughout ITAR-regulated business units;
(3) Oversee implementation of all compliance measures;
(4) Have authority to hire staff and outside consultants to assist.
(5) Review and verify export control jurisdictions and classifications.
(6) Perform, under supervision of ISCO, one audit by an outside consultant during the term of the Consent Agreement.
Commerce/BIS Denies Export Privileges to 8 Persons
(Source: Commerce/BIS, 29 Jan 2019.)
* Respondent (1): Alexander Fishenko of Three Rivers, TX
* Charges: Fishenko was convicted of violating the Internal Emergency Economic Powers Act (50 U.S.C. 1701, et seq. (2012)) and section 38 of the Arms Export Control Act (22 U.S.C. Part 2778 (2012)) (“AECA”). Specifically, Fishenko was convicted of knowingly and intentionally exporting from the U.S. to Russia microelectronics without the required U.S. Department of Commerce licenses. Fishenko was also convicted of knowingly, intentionally, and wilfully exporting from the U.S. to Russia power amplifiers designated as defense articles on the U.S. Munitions List, namely five TriQuint parts TGA2517, without the required U.S. Department of State licenses, in violation of the AECA. Fishenko was sentenced 120 months in prison, three years of supervised release, and a $1,900 assessment, and forfeited over $500,000 in criminal proceeds in the United States. Fishenko was also placed on the U.S. Department of State Debarred List.
* Debarred: 10 years from the date of Fishenko’s conviction.
* Date of Order: 31 Dec 2018.
* Respondent (2): Asim Fareed of Boca Raton, FL
* Charges:
– 15 C.F.R. Part 764.2(d) – Conspiracy. Specifically, Fareed conspired to export a Humboldt Bending Beam Rheometer and a Humboldt Pressure Aging Vessel subject to the EAR from the United States to Iran, via the United Arab Emirates, without the required U.S. Government authorization.
* Penalty:
– Fareed shall provide two annual reports of all export and reexport transactions involving items subject to the EAR in which he participates in any way.
* Debarred: 3 years from the date of the order.
* Date of Order: 19 Dec 2018.
* Respondent (3): Eduard Roel Vazquez of Beaumont, TX
* Charges:
– Vazquez was convicted of violating section 38 of the Arms Export Control Act (22 U.S.C. Part 2778 (2012)). Specifically, knowingly and wilfully aided and abetted the export, and attempt to export, two 7.62x39mm rifles and a 5.56mm rifle, items designated as defense articles on the U.S. Munitions List, from the U.S. to Mexico, without the required U.S. Department of State licenses. Vazquez was sentenced 38 months in prison, three years of supervised release, and a $100 assessment.
* Debarred: 10 years from the date of the order.
* Date of Order: 31 Dec 2018.
* Respondent (4): Joel Prado, Jr. of Beaumont, TX
* Charges: Prado was convicted of violating section 38 of the Arms Export Control Act (22 U.S.C. Part 2778 (2012)). Specifically, conspired to knowingly and wilfully export and cause to export from the U.S. to Mexico .223 caliber rifles, items designated as defense articles on the U.S. Munitions List, without the required U.S. Department of State licenses. Prado was sentenced to 96 months in prison, three years of supervised release, and an assessment of $200.
* Debarred: 10 years from the date of respondent’s conviction.
* Date of Order: 31 Dec 2018.
* Respondent (5): Jose Jesus Campos-Flores of Bastrop, TX
* Charges: Campos-Flores was convicted of violating section 38 of the Arms Export Control Act (22 U.S.C. Part 2778 (2012)). Specifically, the respondent knowingly exported and attempted to export from the U.S. to Mexico firearms designated on the U.S. Munitions List, without the required U.S. Department of State licenses. Campos-Flores was sentenced to 36 months in prison, three years of supervised release, and a $100 assessment.
* Debarred: 7 years from the date of Campos-Flores’ conviction.
* Date of Order: 31 Dec 2018.
* Respondent (6): Shavkat Abdullaev of Philipsburg, PA
* Charges:
– Abdullaev was convicted of violating the Internal Emergency Economic Powers Act (50 U.S.C. 1701, et seq. (2012)). Specifically, Abdullaev was convicted of knowingly and intentionally exporting from the U.S. to Russia microelectronics without the required U.S. Department of Commerce licenses. Abdullaev was sentenced to 36 months in prison, two years of supervised release, and a $400 assessment.
* Debarred: 5 years from the date of the order.
* Date of Order: 31 Dec 2018.
* Respondent (7): Veronica Trujillo of Phoenix, AZ
* Charges:
– Trujillo violated section 38 of the Arms Export Control Act (22 U.S.C. Part 2778 (2012)). Specifically, Trujillo attempted to wilfully and knowingly export and cause to be exported from the U.S. to Mexico 2000 rounds of Wolf 7.62x39mm ammunition and 1,000 rounds of Wolf 9MM luger ammunition, items designated on the U.S. Munitions List, without the required U.S. State Department licenses. Trujillo was sentenced 46 months in prison, with credit for time served, three years of supervised release, and a $100 assessment. Trujillo was also placed on the U.S. Department of State Debarred List.
* Debarred: 7 years from the date of Trujillo’s conviction.
* Date of Order: 31 Dec 2018.
* Respondent (8): Folasade Omowanile of Brooklyn, NY
* Charges:
– Charge 1: 15 C.F.R. 764.2(b) – Causing, Aiding, or Abetting a Violation. Specifically, respondent caused, aided and/or abetted one or more violations of the EAR in connection with the export of handcuffs and leg cuffs, subject to the EAR, to Nigeria. Respondent filed no Electronic Export Information (“EEI”) for the export of the items, nor was a license sought or obtained for export.
* Penalty: Civil penalty in the amount of $10,000.
* Debarred: 3 years from the date of this Order.
* Date of Order: 17 Jan 2019.
Commerce/BIS Fines Ithaca-based Company $80,000 for Engaging in Prohibited Conduct
(Source: Commerce/BIS, 29 Jan 2019.)
* Respondent: Multiwire Laboratories, Ltd. of Ithaca, NY
* Charges: BIS has notified the respondent of its intention to initiate an administrative proceeding pursuant to EAR Part 766.3. Specifically, BIS believes that Multiwire committed the following two violations:
– Charge 1-2: 15 C.F.R. Part 764.2(a): Engaging in Prohibited Conduct. Specifically, Multiwire exported Real-Time Back Reflection Laue Camera Detectors and Accessories, designated EAR99, to the University of Electronic Science and Technology China in Chengdu, China, without the required BIS licenses. The Chinese entity was at all relevant times listed on the EAR’s Entity List. Multiwire did not have an export control compliance program.
* Penalty: Civil penalty of $80,000.
* Date of Order: 16 Jan 2019.
The Export Compliance Journal: “Florida-Based Business Man Handed Largest Civil Penalty in BIS History”
(Source: The Export Compliance Journal, 24 Jan 2018.)
Eric Baird, former CEO of the Sarasota-based package consolidation and shipping service Access USA Shipping, has agreed to pay $17M for willful violations of Bureau of Industry and Security (BIS) regulations.
The civil penalty is the largest to be paid by an individual in BIS history.
On December 18, 2018, Baird entered a guilty plea to 166 counts of U.S. export control laws administrative violations, stemming from Access USA intentionally misrepresenting values and descriptions of items on export documentation, and shipping items listed on the Commerce Control List (CCL) without the appropriate licenses. For example, the Federal Register lists at least once instance where laser sights were identified as “tools and hardware.”
In addition to his own willful export violations, Baird also caused, aided, or abetted Access USA employees, forwarders, and carriers to make false or misleading SED/AES filings with the U.S. Government, and, in some cases, failure to submit any filings for an export shipment.
Under Baird’s direction, employees of Access USA also purchased items for client using Baird’s personal credit card and their own personal cards. They were also instructed to have items delivered to their personal addresses for the express purpose of obscuring the intended recipient of the good purchased.
“Willfully and Intentionally”
Baird and other members of Access USA’s management were aware that their conduct constituted violations of export controls. They had previously received an outreach visit from the BIS’s Office of Export Enforcement, during which they were provided with detailed information related to complying with Export Administration Regulations (EAR), as well as the penalties for violating these regulations. Additionally, in an email to Baird relating to the company’s practice of intentionally undervaluing shipments, his sister, Access USA’s Chief Technology Officer, made it known to Baird that she was not willing to continue being part of the practice of “WILLINGLY AND INTENTIONALLY breaking the law.”
As part of his plea, Baird has been assessed a civil penalty of $17M, and faces a five-year suspension of his export privileges-including not being allowed to apply for export licenses, become involved in negotiations related to any transaction involving any export; or benefiting from any export transaction.
Baird is set to face sentencing on January 30, 2019, where it is expected he will be sentenced to two years of probation on a single criminal count.
