Lost in the Headlines about FCPA Violations, one Northeast Ohio Company Settles an Export Control Civil Penalty Case
On October 22, the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) announced they had reached an agreement with Diebold, Inc. to settle allegations that the company violated the Foreign Corrupt Practices Act (FCPA). The ATM manufacturer, headquartered in North Canton, Ohio, settled with the DOJ and SEC by agreeing to pay nearly $50 million to resolve allegations that it violated the FCPA by bribing government officials in China and Indonesia and falsifying records in Russia in order to obtain and retain contracts to provide ATMs to state-owned and private banks in those countries. According to the DOJ press release, the company made payments and provided gifts and non-business travel to bank employees, recording leisure travel for bank employees as “training.” The DOJ acknowledged that Diebold cooperated in the investigation, including making a voluntary disclosure regarding the FCPA violations.
A few weeks later, in mid-November Cleveland-based Park-Ohio Holdings, Inc. stated in its quarterly SEC filing that it received a subpoena from the SEC in August in connection with a third-party and that the DOJ was conducting a criminal investigation of the third-party. According to the company’s SEC filing, the third-party paid a foreign tax official on behalf of the company in 2007 and that the activity “implicates” the FCPA. The country where the payment was made was not identified.
In the middle of those reports, on October 25, the U.S. Department of Commerce, Bureau of Industry and Security (BIS), released a settlement agreement and order relating to GrafTech International Holdings, Inc., with global headquarters in the Cleveland suburb of Parma. The company settled 12 proposed charges that it exported without required licenses, agreeing to pay $300,000.00 and complete an external audit of its export controls compliance program and those of three overseas operations. While the case did not result in eye-catching multi-million dollar penalties, it is noteworthy nonetheless.
BIS alleged that on four occasions between 2007 and 2009, GrafTech violated the export control regulations when it exported CGW grade graphite to China without an export license. The graphite was classified under ECCN 1C107.a and controlled for missile technology reasons. The shipments had a value of approximately $276,000.00. BIS also alleged that on eight occasions between 2007 and 2010, GrafTech exported CGW grade graphite to India, without required export licenses. The value of those shipments totaled approximately $248,000.00. The settlement agreement stated that GrafTech made a voluntary self-disclosure regarding the violations. Notably, in April 2010, BIS, Office of Technology Evaluation, issued Critical Technology Assessment: Fine Grain, High Density Graphite which addressed U.S. export controls, among other key topics. That report can be found here.
As mentioned, in addition to the $300,000.00 penalty, GrafTech agreed to complete an external audit export controls compliance program and the compliance programs’ three subsidiaries, located in France, Italy, and South Africa. The settlement agreement and BIS order did not detail the involvement of the subsidiaries in the violations, if any, but it can be presumed that the company’s export controls compliance program at each location were a concern to BIS.
According to the terms of settlement, GrafTech must hire a third-party consultant with expertise in U.S. export control law to conduct the audit with respect to all exports and re-exports of items on the Commerce Control List (CCL). The audit must cover a twelve-month period preceding the date of the order and must be delivered to BIS within eighteen (18) months. The order also requires the company to identify actual or potential violations by any of the four entities being audited, including the directive that GrafTech “promptly provide copies of the pertinent air waybills and other export control documents and supporting documentation” to BIS.
Why there is an apparent recent rash of enforcement actions involving Northeast Ohio companies doing business globally is a mystery. Certainly, these revelations should be a “wake-up call” for companies in the region that conduct business globally and have global operations. More broadly, of course, these reports emphasize the need for all U.S. companies to re-double their FCPA and export control compliance efforts in order to avoid costly civil and criminal penalties, additional enforcement expenses, and the reputational harm that violations can cause.
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 in investigations, civil penalty, and voluntary self-disclosure matters, please contact Jon P. Yormick, Esq., firstname.lastname@example.org or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.928.3474.