Archive | July 2013

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.

 

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An OFAC Civil Penalty Settlement Reminder that SMEs Must Perform Due Diligence and have a Compliance Program

This morning’s release from the Department of the Treasury, Office of Foreign Assets Control is a stark reminder that export controls and economic sanctions compliance apply equally to small businesses that export.

Houston-based Stanley Drilling Equipment & Supply, Inc. agreed to pay just over $84,000 to settle a civil penalty case involving alleged violations of the Iranian Transactions and Sanctions Regulations (“ITSR”).  OFAC alleged that in 2008, the company attempted to export 4 shipments and successfully exported 2 shipments of unidentified goods from the U.S. the UAE, “with reason to know that the shipments were intended specifically for supply, transshipment, or reexportation to an oil drilling rig located in Iranian waters.”  The goods were valued at just over $93,000.

Stanley Drilling faced a base penalty amount of $156,000.  Under OFAC’s Economic Sanctions Enforcement Guidelines, it was noted that the company did not have an OFAC compliance program in place at the time of the violations; the transactions were particularly harmful to U.S. sanctions program objectives because they aided the development of Iranian petroleum resources; but the harm to OFAC sanctions program objectives was lessened since 4 of the 6 shipments were detained and did not leave the U.S.  OFAC also noted that Stanley Drilling did not have any prior OFAC violations and is a small company (a check on the World Wide Web did not reveal a company website).

Notably, OFAC found that Stanley Drilling “did not appear to have actual knowledge that the drilling rig was destined for or located in Iranian waters,” but it “had reason to know these facts” because the information was publicly available at the time of the transactions.  In other words, Stanley Drilling failed to perform the necessary due diligence to make these export sales.  It did not follow the “Know Your Customer” mantra.  As the settlement also points out, despite being a small company, an exporter really must have an OFAC compliance program.  Rather obviously, this would be a particularly good practice to follow for companies selling oil/gas equipment to customers in the Middle East.

This penalty settlement clearly shows that small and medium-size enterprises (SMEs) simply cannot believe that U.S. export controls and economic sanctions do not apply to them or that their export sales will “fly under the radar” of government agencies.  They must perform due diligence early in the sales process, at the time of shipment, and even post-sale to avoid even unintentional violations.  To further mitigate the risk of violations, a written export compliance program, including OFAC compliance, is not just a best practice, but truly a necessity.

For assistance with understanding and complying with export controls and economic sanctions laws, regulations, and Executive Orders, as well as representation before BIS and OFAC in investigations, civil penalty, and voluntary self-disclosures, 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.), +1.216.928.3474, or Skype at jon.yormick.

Firm Founder Will Host Azerbaijan Government Officials in Buffalo

On July 19, Jon Yormick will host several Azerbaijan government officials in the firm’s Buffalo office, located at The Innovation Center on the Buffalo Niagara Medical Campus.  The Azerbaijan delegation will be visiting Buffalo as part of the U.S. Department of State International Visitor Leadership Program, hosted locally by the International Institute of Buffalo.

The theme of the Azerbaijan delegation’s visit is “Legal-Regulatory Strategic Trade Control.”  The delegation includes official from several Azerbaijan governmental ministries and agencies, including Deputy Chairman of the State Customs Committee,  Head of the Main Department for Customs Control, Heads of  the State Border Service, the Ministry of Foreign Affairs, Third Secretary, Department for Political-Military Affairs, the Assistant to the Executive Officer of the Navy, Ministry of Defense, the Acting Chief of the State Agency on Regulation of Nuclear and Radiological Activities, the Head of Ministry of Emergency Situations, Main Department for Warning of Emergency Situations, and a Senior Advisor, Foreign Economic Relations Division, Cabinet of Ministers.  The Azerbaijan delegation will be accompanied by Ms. Karen Chaisson, EXBS Advisor, from the U.S. Embassy in Baku, Azerbaijan.  The U.S. Department of State Export Control and Related Border Security (EXBS) Program seeks to prevent the proliferation of weapons of mass destruction (WMD) and advanced conventional weapons by helping to build effective national export control systems in countries that possess, produce, or supply strategic items as well as in countries through which such items are most likely to transit.

Mr. Yormick will meet with the delegation and give a presentation on U.S. Customs, export controls, economic sanctions, and the Foreign Corrupt Practices Act and discuss how these U.S laws and regulations govern international trade and apply extraterritorially.

“It is a great privilege to meet with the delegation from Azerbaijan during their visit in Buffalo,” Yormick commented.  “I welcome the opportunity to discuss these important legal and regulatory regimes and thank the International Institute for the invitation to host the delegation.”