The Bureau of Industry and Security (“BIS”) posted yesterday the details of its settlement with Eastways Shipping, a small New-York based freight forwarder. Under the settlement agreement Eastways agreed to pay $70,000 to settle charges that it handled three export shipment of EAR99 scrap metal to Allied Trading Company, a company on BIS’s Entity List. The settlement suspends $10,000 of the penalty provided that the other $60,000 is paid when due and that Eastways commits no further export violations for a one-year period. The value of the shipments was $95,335.

Eastways appears to be a very small company with estimated annual revenues of $930,000 and five employees. It’s quite possible that a company of that size was unaware of the need to check the Entity List or even knew how to do so. That doesn’t excuse the violation, particularly where checking the Entity List and other lists isn’t terribly burdensome, but it does suggest that a fine equal to more than seven percent of the company’s annual revenues and more than 70 percent of the value of the shipment is perhaps overly punitive in this situation.

As I’ve said before, BIS would do more to promote small business compliance by specific outreach efforts targeted at small businesses rather than periodic, and severe, spankings of small businesses that commit minor export violations such as this one. Under the listing for Allied Trading Company there is a presumption of license approval for exports of EAR99 items, so Eastway’s sin was not really exporting the scrap metal, but was for handling an export where the shipper failed to seek a required license that would have been routinely granted.

Last week a federal district court in Ohio ruled that OFAC violated the Fourth Amendment rights of KindHearts for Charitable Humanitarian Development, Inc. when it blocked the charity’s assets after a provisional finding that the charity was providing material support to Hamas. Under the court’s ruling, the Fourth Amendment required that OFAC obtain a judicial warrant prior to blocking the charity’s assets. That may have you wondering whether this decision will have an impact on other OFAC designations of blocked entities, including final, and not just provisional, designations. Although the court’s reasoning applies equally to final and provisional designations, the short answer is that this decision may not have much impact on OFAC designations in general.

First, application of a Fourth Amendment rationale is limited to U.S. persons and entities and would not be an argument that could be raised by a foreign person or entity subject to an OFAC blocking order. An overwhelming number of OFAC designations are of foreign persons and entities. On the contrary, as the court noted:

KindHearts is an American corporation based in Toledo, Ohio. Its assets, presumably, came from persons resident in this country. Those assets were in this country when the government seized them.

Second, not all courts looking at OFAC designations have agreed that blocking an entity’s assets constitutes a seizure of those assets, in large part because the government doesn’t take possession of the blocked assets. See Islamic Am. Relief Agency v. Unidentified FBI Agents, 394 F. Supp. 2d 34, 47-48 (D.D.C. 2005); Holy Land Foundation for Relief and Development v. Ashcroft, 219 F. Supp. 2d 57, 79 (D.D.C. 2002). Accordingly, even in cases where OFAC blocks the assets of a U.S. person or entity, other courts may be unwilling to require that OFAC obtain a judicial seizure order prior to blocking assets.