Jun

5

Beat the Fokkers

Posted by at 9:32 pm on June 5, 2014
Category: Criminal Penalties • Iran Sanctions • OFAC

Fokker Services Building in Hoofddorp via http://www.fokker.com/sites/default/files/styles/carousel_innovations/public/media/Images/Services/Contact_Fokker_Services_Location_Hoofddorp_637x286.jpg?itok=NYP0cc2k [Fair Use]The Office of Foreign Assets Control (“OFAC”) announced today that a $21 million fine had been extracted from the Dutch company Fokker Services BV in connection with its export of U.S. origin spare aircraft parts from the Netherlands to Iran and Sudan. The re-exports to Iran and Sudan by a Dutch company were prohibited under section 560.205 of the Iran regulations and section 538.507(b) of the Sudan regulations because the aircraft parts were presumably ECCN 9A991, although this fact is not expressly stated.

Half of the $21 million dollars is being paid in connection with a deferred prosecution agreement with the U.S. Attorney for the District of Columbia. This is disturbing because the OFAC announcement makes clear that the exports were voluntarily disclosed by Fokker to OFAC. One of the major incentives for a voluntary disclosure is to avoid criminal prosecution. After the Fokker case, people are certainly going to think twice about making a voluntary disclosure.

Nothing in OFAC’s description of the reasons for the penalty justify turning a voluntary disclosure into a criminal prosecution. OFAC describes the violation as “wilful and reckless” because Fokker knew that these were U.S. origin parts. Note that there is no claim that Fokker knew that its export of these parts from the Netherlands to the embargoed countries was a violation of U.S. law, only that it knew that the parts were U.S. origin. Foreign persons might well not understand that exports of U.S. origin parts from their own country and in compliance with their own laws would be illegal, so OFAC is making an unjustifiable leap from knowledge of the parts’ origin to a “wilful and reckless” violation of law. Another aggravating factor was the absence of a U.S. sanctions compliance program at the Dutch company, again hardly a sound reason for turning a voluntary disclosure into a criminal prosecution.

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Copyright © 2014 Clif Burns. All Rights Reserved.
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4 Comments:

§ 538.507(b) Sudan Sanctions Regulations seem to indicate that foreign persons do not require a US reexport license from OFAC for reexports of EAR99 items to Sudan? So the reexports to Sudan should not have been EAR99 items if my understanding is correct?

(b) Goods and technology not subject to export license application requirements under other United States regulations. The reexportation to Sudan or the Government of Sudan by a non-U.S. person of any goods or technology of U.S. origin, the exportation of which to Sudan is not subject to any export license application requirements under any other United States regulations, is authorized under this section.
Note to paragraph (b) of § 538.507:
However, the reexportation by non-U.S. persons of U.S.-origin goods, technology or software classified as EAR99 under the Export Administration Regulations (15 CFR parts 730 through 774) may require specific authorization from the Department of Commerce, Bureau of Industry and Security. See, for example, the end-use and end-user restrictions set forth in 15 CFR part 744.

Comment by Expert on June 6th, 2014 @ 4:30 am

    Thanks. Fixed. I thought EAR99 items could be reexported, but for some reason I didn’t see that section in the Sudan regs while writing the post.

    Comment by Clif Burns on June 6th, 2014 @ 6:44 am

The DOJ press release goes into a good bit of detail about the number of schemes Fokker used to “work-around” U.S. sanctions and export laws. It also noted that some were “carried out with the knowledge and approval of the company’s senior corporate managers, as well as with the knowledge of the company’s Legal and Export Compliance departments.” If true, those actions would seem to explain the referral to the DOJ. Here is the link: http://www.justice.gov/usao/dc/news/2014/jun/14-130.html

Comment by Anderson on June 6th, 2014 @ 5:17 pm

Interesting case. Shocking to see that a voluntary disclosure is turned into a criminal prosecution. This will have consequences for future cases.

Comment by Laura | Dutch Law Firm AMS on June 12th, 2014 @ 5:22 am