Oct

5

Just Because It’s Not Double Jeopardy Doesn’t Mean It’s Fair


Posted by at 9:15 pm on October 5, 2011
Category: BISIran SanctionsOFAC

Flowserve HQ
ABOVE: Flowserve HQ

The Bureau of Industry and Security (“BIS”) announced on Monday that Texas-based manufacturer Flowserve agreed to pay $2.5 million to settle charges that the company and its foreign affiliates to settle BIS’s allegation of 288 violations of the Export Administration Regulations, including exports of items to Iran, Syria and other sanctioned countries. What makes this a particularly hard kick in the nether regions by BIS is that Flowserve voluntarily disclosed these violations. I suppose this is considered leniency by BIS because it could have fined Flowserve $72 million dollars.

The BIS settlement with Flowserve GB Ltd. (“Flowserve UK”), Flowserve’s British subsidiary, which is one of the dozen Flowserve settlements posted by BIS on its electronic FOIA page, is particularly instructive. Two of the counts against Flowserve GB relate to Flowserve products which Flowserve UK ordered from the U.S. and then transshipped to Iran:

Pursuant to Section 560.204 of the [Iranian Transaction Regulations], maintained by the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), an export to a third country intended for transshipment to Iran is a transaction subject to the ITR and requires OFAC authorization. Pursuant to Section 746.7 of the [Export Administration] Regulations, no person may engage in the exportation of an item subject to both the Regulations and the ITR without authorization from OFAC. No OFAC authorization was obtained for the exports described herein. In so doing, Flowserve UK committed two violations of section 764.2(b) of the Regulations.

The problem with this, at least in terms of simple fairness, is that OFAC, which administers the ITR had already extracted a fine from Flowserve for this very violation of OFAC’s own regulations. When Congress upped the possible fines for export violations to $250,000, it is quite clear that it had no idea that the export agencies would engage in such piling on and that neither of the agencies made clear to Congress that they intended to engage in such behavior.

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One Comment:


Foreign export controllers well remember april 14,2005, when BIS changed CB3 to CB2 for ECCN 2B350 items. To avoid an additional reexport license, such products were since then sourced from elsewhere. The actual case serves as an impressive justification for such “design out” Maybe BIS – one day- revises License Exception APR?

Comment by Bernhard on October 13th, 2011 @ 2:06 pm