A subsidiary of a British company has pleaded guilty to illegally exporting commercial aircraft from the United States to Iran?the second reminder in less than six months that goods or commodities in the United States fall under U.S. export control regulations and that foreign subsidiaries can trigger violations for parent entities.
Balli Aviation Ltd., a subsidiary of the United Kingdom-based Balli Group PLC, on February 5, 2010, pled guilty to exporting three commercial aircraft from the United States to Iran without obtaining the required export license from the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) or necessary authorization from the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).
As part of the plea agreement, Balli Aviation will pay a $2 million criminal fine to DOJ, and it will be subject to corporate probation for five years—the latter of which will be suspended if certain conditions are satisfied. In addition, Balli Group and Balli Aviation Ltd. will pay a civil penalty of $15 million to BIS and OFAC—of which $2 million will be suspended and waived if there are no further export control violations. The two also must hire an unaffiliated, third-party consultant to conduct external audits of their compliance with U.S. export control laws and sanctions regulations. Considering the penalties, it is worth noting that Balli Group and Balli Aviation did not voluntarily disclose this matter to OFAC. Click here to view a copy of the civil settlement agreement.
Under the Iranian Transaction Regulations (ITR) promulgated by OFAC, companies subject to U.S. export control laws need the applicable export license from the U.S. government to export, re-export, or sell/supply goods from the United States to Iran or to a person in a third country if the company knows that the goods are intended for supply or shipment to Iran. Balli Group and Balli Aviation, although British, fell under the Export Administration Regulations (EAR) because the goods involved originated in the United States. With limited exceptions, any commodity, software, or technology in the United States—or of U.S. origin—is subject to U.S. export control regulations.
In another enforcement action, announced by BIS in September 2009, five foreign subsidiaries of Texas-based Thermon Manufacturing Company were found to be in violation of the EAR for exporting or re-exporting from abroad U.S.-origin heat-tracing equipment to Iran, Syria, Libya, and certain prohibited entities in India without a license. Because Thermon discovered and voluntarily disclosed the violations to BIS, the foreign subsidiaries were subject to civil penalties of only $176,000.
A company can mitigate the possibility of U.S. export control violations by implementing an export compliance program tailored to the nature of its business. In the event that violations may have occurred, prompt due diligence and voluntary disclosures are useful ways to alleviate penalties