Archive for the ‘Civil Penalties’ Category


Dec

7

BIS, For One, Does Not Welcome Our New Robot Overlords


Posted by at 6:28 pm on December 7, 2017
Category: BISCivil PenaltiesEntity List

Pilot Truck via http://www.pilotdelivers.com/images/photo-library/PFS011-web.jpg [Fair Use]The Bureau of Industry and Security (“BIS”) recently announced that Pilot Air Freight had agreed to a $175,000 fine ($75,000 of which was suspended) to settle charges that it had aided and abetted an attempted unlicensed export by one of its customers (against whom there is no record of any enforcement action) to IKAN Engineering Services, a company on the BIS Entity List. This seems rather high for what was essentially a software glitch.

According to the charging documents, Pilot had multiple interfaces for entering shipping data.  Its main interface, called “Navigator,” was linked to proprietary screening software that would screen shipment recipients against the Entity List and other relevant screening lists.   A second interface, called “Co-Pilot,” allowed customers to enter shipment data.   Apparently, entries made in “Co-Pilot” weren’t linked back to the Navigator screening software, so when a customer entered a shipment to IKAN, the shipment was not flagged.   It was apparently intercepted by Customs when it reached the Port of Long Beach.

There is nothing in the charging documents to suggest that Pilot knew of this glitch in its automated screening system.  It apparently thought that shipments were being screened.  This is unlike those cases where the exporter did not know of its obligation to screen shipments or knew of its obligation but decided not to screen certain shipments.   Certainly BIS has every right to penalize Pilot here, but the penalty should have taken into account what appear to have been the innocent and unintentional origins of the problem.   Almost everyone uses automated screening and would now appear to be at the mercy of the robots they employ to do the screening and the techies they hire to program the robots.

There’s another interesting wrinkle in the charging documents that BIS more or less glosses over.

Pilot failed to flag this transaction even though the name and address in its possession closely matched the Entity List listing for IKAN.   As Pilot has acknowledged to BIS during this matter, properly configured screening software would have identified the attempted export as involving a listed entity and flagged it for review.

Even though BIS acknowledges that this was not an exact match, we have no idea how inexact the match was.  Even though Pilot agreed that it was not so inexact that it would have been missed by its screening software , it is hard to tell whether they really believed that or felt compelled to say it to keep BIS happy.  The failure of BIS to reveal the name used by the shipper suggests that the match might not have been as close as BIS would now have us believe.

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Apr

5

American University in Beirut Dinged by DOJ for SDN Listing in Directory Database


Posted by at 8:59 pm on April 5, 2017
Category: Civil PenaltiesOFACSDN List

AUB - College Hall by marviikad [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/fLntMv [cropped]The American University in Beirut (the “AUB”) recently agreed to pay $700,000 to settle claims in a civil suit under the False Claims Act brought by the United States. One of the violations alleged was that the AUB, while receiving funds under government contracts with USAID, provided material support to Jihad al-Binaa, an SDN designated under the SDGT program, by “including Jihad al-Binaa in a database that AUB maintained on its public website (the “NGO database”) for the stated purpose of connecting Non-Governmental Organizations (“NGOs”) with students and others interested in assisting them.”

This seems to run contrary to guidance from OFAC that says that the so-called informational materials exception (otherwise known as the Berman Amendment) allows listings in membership directories. In this guidance, issued in 2003, OFAC says this

The listing of basic information on a website in a uniform format for companies around the world, including Iran, by a U.S. person, is not prohibited by the ITR. … You note in your letter that the information being added to the enhanced listings displayed on your website is based on pre-existing information supplied by customers wishing to purchase enhanced advertising from the U.S. Company. The posting of this alternative layout of information on your website regarding companies in Iran, including additional data elements of identifying information, would not be prohibited, as long as the U.S. Company does not provide any marketing services to customers in Iran or substantively enhance information provided by Iranian customers.

The same logic would seem to apply whether the sanctioned party is a resident of Iran or an SDN designated under another program.

There may be, however, some reasons why it might not. Section 594.201(a)(4)(i) prohibits the provision of “financial, material, or technological support” to an entity designated under those regulations. And although section 594.305 of the SDGT regulations contains the standard definition of “informational materials,” that term, oddly, is not used elsewhere in the SDGT regulations and there is not an explicit informational materials exemption as there is, for example, in 560.210(c) of the Iranian Transactions and Sanctions Regulations. This means that there is at least an argument that the provision of informational materials to an SDN designated under the SDGT program might constitute prohibited “financial, material or technological” support to that SDN.

The language of the Berman Amendment, set forth in 50 U.S.C. § 1702(b)(3) prohibits regulation of “importation from any country, or the exportation to any country” of informational materials. Arguably, the prohibition of provision of informational materials to an SDN does not involve the prohibition of the importation or exportation of informational materials.

The better criticism of the government’s case here is whether simply listing an SDN in a database for students is a financial, material or technological support of the SDN. If it is, then one might wonder whether OFAC violates its own regulations by providing a listing, complete with an address and alternate names, in the SDN directory, er, list. Also, one has to wonder about how Facebook gets away with giving Jihad al-Binaa its own page without violating the rule if this kind of activity if “financial, material or technological” support. The answer is simple: providing this sort of information on the Internet is not such support.

Photo Credit: AUB – College Hall by marviikad [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/fLntMv [cropped]. Copyright 2014 marviikad

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Nov

30

Maybe There’s a Good Idea Lurking in Tom Fox’s Stealth Advertorial


Posted by at 4:44 pm on November 30, 2016
Category: BISCivil PenaltiesCompliance Programs and ProceduresCriminal PenaltiesDDTCFCPAOFAC

Internet Email by twitter.com/mattwi1s0n [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/75rLY [cropped and processed]

Over at the excellent FCPA Compliance & Ethics Blog, Tom Fox has a plug for email monitoring software disguised as a blog post.  He’s even doing a “webinar” with the software developers — completely free, of course —  presumably to push the sales of this product.

Notwithstanding what might not be his completely objective take on this software product, Fox raises a good issue that might warrant consideration for incorporation into your export compliance program.  I assume everyone reading my blog and this post is acutely aware that a robust compliance plan is the best insurance against getting taken to the cleaners by the DoJ and the export agencies after it is discovered that an employee in your Hamburg office has been shipping  your U.S. origin night vision to Iran.  But what does your compliance program do proactively to ferret out such problems?  Fox suggests that companies should consider periodic email sweeps for keywords

The concept is straightforward; at regular intervals you can sweep through your company email database for identified key words that can be flagged for further investigation, if required.

So, should you consider sweeping all emails for keywords such as “Iran” or “Syria”? What other keywords might help pinpoint export compliance problems? “Jail”? “Orange Jumpsuit”? “Export License,” as in “let’s avoid fussing with that stupid export license requirement”? Are there keywords that can identify times when employees say something like “Call me, since we shouldn’t put this in writing”?

While I think such an approach is a nice shiny bauble that can be dangled in front of prosecutors and enforcement agencies and therefore is worth considering, I also wonder whether such sweeps will actually be effective in detecting violations. First, in my experience, most of the problems come from sales employees outside the United States who don’t think U.S. laws should interfere with their commissions. Foreign privacy laws, particularly in the E.U., often pose barriers to rifling through foreign employees’ emails. Second, in my experience, employees, particularly those with mischief in their hearts, are much too savvy to talk openly in emails about their transshipment schemes. They almost always use code of some kind to conceal what they are up to. These employees and their code words are normally not clever enough to fool prosecutors, but those code words — like “the country we discussed” or “Middle Earth” — will easily evade keyword email sweeps.

Any thoughts on this? Share your experiences (anonymously if you wish) in the comments section.

Photo Credit: Internet Email by twitter.com/mattwi1s0n [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/75rLY [cropped and processed]. Copyright 2003 twitter.com/mattwi1s0n

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Copyright © 2016 Clif Burns. All Rights Reserved.
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Jun

8

Cost of Sinning Adjusted for Inflation


Posted by at 7:27 pm on June 8, 2016
Category: Civil PenaltiesDDTC

Money by Nick Ares [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/55FLSR [cropped and processed]Of course, when it comes to adjusting benefits, the government could care less about the effects of inflation. However, when it comes to putting money in its pocket (as opposed to taking it out of the government till and putting it in yours), well, inflation is, all of a sudden, a huge issue. Just in case you were thinking of committing any export violations, the Directorate of Defense Trade Controls (“DDTC”) wants you to know that your penalty will be adjusted upward, as of August 1, 2016, to reflect inflation since 1985, the year in which the $500,000 per violation penalty was set. This adjustment will apply to all penalties assessed after that date even if the export occurred prior to that date.

So how much is an export violation going to cost now? Well, DDTC consulted the Office of Management and Budget (“OMB”) which told it, based on price increases, that the multiplier for penalties set in 1985 is 2.1182. This means the new penalty is a whopping $1,094,010 per violation. Evidently, Christmas occurs in August for DDTC this year. Although I’m not clear exactly how OMB computed that multiplier, I can verify that the difference in the Consumer Price Index between 1985 and 2016 is a multiple of around 2.23, so apparently the OMB was in a good mood and cut violators a little slack here.

Of course, for all of you who were checking your cash reserves and contemplating leaving the export business entirely, DDTC was quick to point out, in a statement on its website, that the increase “does not impede the discretion of [DDTC] to assess [penalties] lower than the maximum amount should circumstances warrant.” That’s cold comfort when lower means something lower than a million dollars.

Photo Credit: Money by Nick Ares [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/55FLSR [cropped and processed]. Copyright 2008 by Nick Ares

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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)