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, firstname.lastname@example.org or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.928.3474.