Office of Export Enforcement Bureau of Industry and Security U.S. Department of Commerce

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1 Office of Export Enforcement Bureau of Industry and Security U.S. Department of Commerce James Fuller, Special Agent Dallas Field Office

2 Overview The Role of OEE Statutes and Penalties Deemed Exports Outreach Visits Due Diligence Recordkeeping Requirements Transshipments Previous Enforcement Cases Penalties Jurisdictions Red Flags Questions & Answers Export Control Reform 2

3 The Mission of OEE Protect national security and foreign policy goals The prevention and detection of illegal exports Investigating and prosecuting individuals and companies that violate the EAR Partnering with industry to help you avoid Illegal transactions Negative publicity Fines, penalties and/or imprisonment 3

4 OEE Field Offices San Jose Los Angeles Chicago Dallas Houston Boston New York Washington Miami 4

5 BIS Export Enforcement Outreach Visits The purpose of outreach visits can be Educational Relationship building Intelligence gathering Investigatory 5

6 Outreach Inquiry or Visit Types of BIS Visits When you ask an OEE agent to your office it s a VISIT When an OEE arrives at your door it s an INQUIRY Audit Pre-License Check/Post Shipment Verification Pre-license checks are conducted to determine the bona fides of the transaction and the end-user before a license is issued Post-shipment verifications are visits that help the U.S. Government ensure that an exported item is being used in accordance with the export license 6

7 OEE May Make Requests for Documents Prior to Visit Administrative Subpoenas Inspection of Records Because of Non-Compliance Internal Audits by Corporate Compliance Officer Exporter, Freight Forwarder, Broker, Shipper & Ultimate Consignee Records Document Retention Recordkeeping Policy is 5 Years Covers Paper, Electronic and Other Media No person may fail or refuse to comply with any reporting or recordkeeping requirement of the EAR or any order, license or authorization of export control documentation -15 CFR (i) 7

8 Record Keeping Requirements 762 of EAR sets forth general recordkeeping requirements Also references numerous other sections of the EAR which separately identify recordkeeping obligations Broad scope of records related to EAR-controlled activity are covered by recordkeeping requirements (EAR 762.2) Original records are required, although copies are normally acceptable if they are accurate, legible and durable. (EAR 762.5) 8

9 Why Is Recordkeeping Important BIS/CBP may inspect your records that is not the time to discover that you have an insufficient recordkeeping system Records should be easily locatable within a reasonable amount of time Poor recordkeeping suggests the exporter is not compliant in other respects Missing records can be aggravating factor that results in greater civil penalty or criminal penalties Recordkeeping violation can greatly increase the number of violation. 9

10 Activities That Violate The EAR Engaging Prohibited Conduct Causing, Aiding or Abetting a Violation Solicitation and Attempt Conspiracy Acting with Knowledge of a Violation Possession with Intent to Export Illegally Misrepresentation and Concealment of Facts Evasion Failure to Comply with Reporting and Recordkeeping Requirements License Alteration Acting Contrary to Terms of A Denial Order 10

11 How Does BIS Discovers Violations EEI/AES document review Visit to company Project Outreach Other Government Agencies Anonymous calls Disgruntled employees Competitors Public Sources - websites, trade shows, publications 11

12 Who Is Targeted Companies & Individuals Individuals targeted for deterrent effect Most violations are committed by a select few persons inside an organization No financial still prosecute Acting for company vs. self Ability to work in the future denied party status Companies targeted for same deterrent effect plus significant fines and penalties 12

13 Potential Consequences of a Violation Consequences may include: A Warning Letter A Civil Enforcement proceeding with various outcomes Fine Denial of export privileges Exclusion from practice Referral to the Department of Justice from Criminal Prosecution The type of enforcement action depends primarily on the natures and scope of the violations 13

14 Issuing a Warning Letter Warning Letters represent a conclusion that an apparent violation has occurred. Instead of bringing an administrative enforcement proceeding. Belief by BIS that it will achieve the appropriate enforcement result. A Warning Letter will fully explain the apparent violation and urge compliance. Used by BIS when: Apparent violation of a technical nature, where good faith efforts to comply with the law and cooperation with the investigation or a voluntary self-disclosure. No aggravating factors exist. 14

15 Voluntary Self-Disclosures Permitted under EAR Section Initiated by a company when a company identifies export violations Violations still investigated by OEE Great Weight Mitigating Factor Internal and External Costs 15

16 Penalties for Export Control Violations (EAR & ITAR) Criminal Penalties Agency (Regulations) BIS (EAR) DDTC (ITAR) BIS (EAR) DDTC (ITAR) Willful Knowing (EAR) Corporation Individual Corporation Individual A fine of up to the greater of $1,000,000 or five times the value of the exports for each violation. A fine of up to $1,000,000 or imprisonment for up to 20 years, or both, for each violation. A fine of up to $1,000,000 or imprisonment for up to ten years, or both, for each violation. A fine of up to the greater of $50,000 or five times the value of the exports for each violation Administrative Penalties N/A A fine of up to the greater of $50,000 or five times the value of the exports or imprisonment for up to 5 years, or both, for each violation The imposition of a fine of up to the greater of $250,000 for each violation or two times the amount of the transaction that is the basis of the violation with respect to which the penalty is imposed. The imposition of a fine of up to $500,000 for each violation. N/A 16

17 Responsibility Parties The EAR place legal responsibility on persons who have information, authority or functions relevant to carrying out transactions subject to the EAR. These persons may include exporters, freight forwarders, carriers, consignees and other participants in an export transaction. The EAR apply not only to parties in the United States, but also to persons in foreign countries who are involved in transactions subject to the EAR. 17

18 Denial of Export Privileges Done via a Denial Order Suspend or revoke any or all outstanding licenses issued under the EAR to a person named in the denial order or in which such person has an interest. Restrict dealings in which that person may benefit from the any export or reexport of such items. Significant consequences in today s global economy 18

19 Exclusion from Practice Any person acting as an attorney, account, consultant, freight forwarder, or any other representative capacity for any license application or other matter before BIS may be excluded by order from any or all such activities before BIS. 19

20 Referral for Criminal Prosecution Referral to DOJ is in addition to pursuing an administrative enforcement action U.S. Attorneys Offices National Security Division Washington, D.C. May result in charges for EAR violations (knowing, willful) and other non-ear violations (e.g. criminal conspiracy charges) 20

21 Criminal Export Violations Two Varieties of Criminal EAR violations: Knowingly Violates or conspires to or attempts to violate the EAA, EAR, or any order license issued thereunder Willfully Violates or conspires to or attempts to violate the EAA, EAR, or any order license issued thereunder, with knowledge that the exports involved will be used for the benefit of, or that the destination or intended destination of items involved is, any controlled country or any country to which exports or reexport are controlled for foreign policy purposes except in the case of an individual 21

22 Criminal Sanctions 18 U.S.C. 371 Conspiracy 18 U.S.C Smuggling 18 U.S.C False Statements 18 U.S.C. 1341, 1343 & 1346 Mail & Wire Fraud 18 U.S.C & Money Laundering 50 U.S.C IEEPA Violations 22

23 Mitigating Factors Voluntary Self Disclosure great weight, especially would have been reasonably unlikely to discover without the self disclosure. Effective Export Compliance Program and its overall export compliance efforts have been of high quality. Whether the party has taken steps to address compliance concerns raised by the violations, including steps to prevent reoccurrence. An isolated occurrence or the result of a good faith misinterpretation Authorization for the export transaction in question would likely have been granted upon request. The party has never been convicted of an export-related criminal violation. 23

24 Aggravating Factors Deliberate effort to hide or conceal the violation. Party s conduct demonstrated a serious disregard for export compliance. The violation was significant in view of the sensitivity of the items involved and/or the reason for controlling them to the destination in question (national security or essential U.S. interest). e.g. nuclear, biological and chemical weapon proliferation, missile technology proliferation and national security concerns. The violation was likely to involve harm of the nature that the export controls are principally intended to protect against. The quantity and/or value of the exports was high, such that a greater penalty may be necessary to serve as an adequate penalty for the violation or deterrence of future violations, or to make the penalty proportionate to those for otherwise comparable violations involving exports of lower quantity or value. The presence in the same transaction of concurrent violations of laws and regulations, other than those enforced by BIS. 24

25 Settlements Most administrative enforcement cases are resolved through settlement. Settlement offers depend on the facts and circumstances of the case and relevant precedent. Other requirement may be imposed. Audit Reporting 25

26 Where Does Jurisdiction Lie Cuba Exports & Reexports to Cuba Financial transactions and personal travel to Cuba Iran Exports of CLL and EAR99 items to Iran BIS OFAC OFAC Reexports of CCL items to Iran OFAC Reexports of EAR99 items to Iran by U.S. Person OFAC Reexports of EAR99 items to Iran by non-u.s. Person BIS Sudan Exports & Reexports of CCL items to Sudan Exports & Reexports of EAR99 items to Sudan for most end-users ad end-uses Export & Reexports of EAR99 items to Part 744 end-users and end-uses to Sudan OFAC & BIS OFAC OFAC & BIS Syria Exports & Reexports to Syria Provision of services to Syria by U.S. Person BIS OFAC 26 North Korea Exports & Reexports to North Korea BIS

27 Deemed Exports A deemed export" is an export of technology or source code (except encryption source code) that is "deemed" to take place when it is released to a foreign national within the United States. See 734.2(b)(2)(ii) of the Export Administration Regulations (EAR). 27

28 Red Flags Shipping route is abnormal for the product and destination A general trading company is listed as the ultimate consignee Routine installation, training or maintenance services are declined by the customer The customer is willing to pay cash for a very expensive item or willing to pay more then the listed price. Packaging is inconsistent with the stated method of shipment or destination. The customer or purchasing agent is reluctant to offer information about the end-use of the product. The products capabilities do not fit the buyer s line of business The customer has little or business background The customer is unfamiliar with the product s performance characteristics but still wants the product. Deliver dates are vague or deliveries are planned for out-of the-way destinations. 28 If you suspect a possible violation, contact the BIS Office of Export Enforcement.

29 Destinations of Diversion Concern United Arab Emirates China Singapore Hong Kong Thailand Malaysia Cyprus Malta Panama Pakistan China Mexico Canada South Africa Hong Kong Turkey Yemen Sudan 29

30 ZTE Corporation Importance of having a culture of ethics and compliance ZTE Corp - 2 nd largest publicly-traded telecom company in PRC, 4 th largest in world In March 2017, ZTE agreed to pay a $661 million civil penalty to BIS for export of telecommunications equipment to Iran and North Korea in violation of EAR and ITSR - largest civil penalty ever levied by BIS o DOJ imposed approximately $430 million fine, OFAC imposed approximately $100 million fine ZTE planned and organized scheme to establish, control and use a series of shell companies to make exports deliberate and extensive efforts to avoid export controls 30

31 ZTE Corporation In 2011, ZTE senior management ordered that company-level export control project team study and respond to company s export control risks. Four senior managers signed proposal addressing these issues. Among primary goals was to identify and establish new isolation companies (or cut-off companies ), which would be responsible for supplying U.S. component parts necessary for projects in embargoed countries 31

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33 OFFICE OF EXPORT ENFORCEMENT Hotline James Fuller Special Agent Office of Export Enforcement 225 E. John Carpenter Freeway Suite 820 Irving, Texas (O) (C) (F) For more information or to receive regular updates, please visit our website at : 33