Zulutrade, Inc. Settles Potential Sanctions Violations with Multiple Government Agencies

Zulutrade, Inc., an online foreign exchange broker located in Greece and incorporated in Delaware as a Commodities Futures Trading Commission (CFTC)-registered entity, has agreed to a $200,000 settlement with OFAC for alleged violations of the Iranian Transactions and Sanctions Regulations (ITSR), the Sudanese Sanctions Regulations (SSR) and Executive Order 13582 (Blocking Property of the Government of Syria and Prohibiting Certain Transactions With Respect to Syria). Zulutrade’s settlement with OFAC was coordinated with its primary regulator, the CFTC, which concluded a separate settlement with Zulutrade consisting of a $150,000 penalty and an $80,000 disgorgement.

Zulutrade is a trading platform that allows its customers to automatically place currency foreign exchange (FX) trades with broker-dealers, but it failed to screen or police its accountholders from OFAC-targeted countries to ensure they were OFAC-compliant. Over several years beginning in 2009, Zulutrade operated accounts for more than 400 customers in Iran, Sudan and Syria, and exported services to these customers by placing FX trades via its platform. The company also initiated eight funds transfers, amounting to $10,264.36, destined for two individuals in Iran.

According to OFAC’s enforcement information, this failure to screen for OFAC observance was due to a “lack of awareness of U.S. sanctions regulations.” The base penalty for the apparent violations was $844,090,000. The much lower settlement is an apparent reflection of OFAC’s acknowledgment that Zulutrade has implemented remedial measures and substantially cooperated in OFAC’s investigation, as well as its consideration that the company is small, with limited operations. The CFTC has continued to collaborate with OFAC to ensure that Zulutrade’s bolsters its sanctions compliance competence. 

To learn more information about the CFTC settlement, read its press release.

Banking Institution Settles for Alleged Violation of the SSR

Branch Banking & Trust (“BB&T”), based in Winston-Salem, North Carolina, has agreed to a $19,125 settlement with OFAC for one apparent violation of the SSR for processing funds in a transaction involving an entity on OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”).

On June 1, 2011, BB&T received instructions from a customer to process a $20,000 transfer destined for a third-country company’s account at a foreign financial institution. While BB&T interdiction software flagged the payment due to a name in the payment details that appeared to match an entry on the SDN List, BB&T’s investigation determined that the name was a false positive. A BB&T compliance specialist then proceeded to enter “NATIONALITY: SUDANESE” in the payment details before approving the wire. Upon rescreening, the interdiction software failed to generate an alert because “Sudanese” (or other similar terms, such as “Burmese,” “Cuban” or “Iranian”) was not an existing key word in the system. After the transaction was processed, the bank’s customer notified BB&T that the individual was located in Omdurman, Sudan, and that the payment was for merchandise being shipped to Sudan.

The settlement, a reduction from the base penalty of $25,000, reflects, among other factors, OFAC’s determination that this was not an egregious case. Nevertheless, according to OFAC, BB&T’s “lack of appropriate stop descriptors demonstrated an inadequate compliance program with regard to its sanctions screening process.”

Find out more by reading OFAC’s enforcement information and Wall Street Journal coverage.

Chinese Businessman and His Companies Accumulate $8.4 Million in Fines for Export Violations

BIS imposed almost $8.5 million in fines on Hong Kong entrepreneur Bruce Lam and his two companies, Creative Electronics and United Sources Industrial Enterprises, for knowingly evading BIS regulations that require BIS authorization to export U.S. goods to restricted parties. Specifically, Lam established Creative Electronics so that it could order electronic components from U.S. suppliers on behalf of United Sources, a restricted party, which, in turn, sold the components to other restricted parties. Despite this hefty fine and the fact that none of the settlements were results of voluntary disclosures, Mr. Lam and his companies may be obligated to pay only $650,000, less than 10 percent of the fines imposed, if they avoid further violations in the next five years. According to the orders, the penalties were levied as follows:

  • Lam, charged with one violation, will have to pay $250,000 in 30 days; he and his businesses are prohibited from buying items exported from the United States for five years.
  • Creative Electronics, charged with 58 violations, was given a $3.6 million penalty, which will be suspended for a five-year period, and thereafter will be waived, provided that during this five-year probationary period, the company does not commit any further violations.
  • United Sources, charged with 39 violations, was assessed a $4.1 million penalty, of which $400,000 will be paid in four installments. Payment of the remainder will be suspended for a five-year period and waived thereafter, provided that, during this five-year probationary period, the company does not commit any further violations and has made full and timely payment of the $400,000.

Read further coverage at Law360.

Italian Company Settles Syrian Export Violations Charges with $100,000 Penalty

Area S.p.A., an Italian technology company that develops monitoring equipment, will pay a $100,000 civil penalty settling BIS charges that it was a knowing vendor of U.S.-based network monitoring equipment to the Syrian Telecommunications Establishment (STE) without securing the required U.S. government permissions. BIS indicated that Area cooperated with the agency during its investigation.

In February 2011, Area sold a Central Monitoring System (CMS), a technology capable of collecting a variety of personal data, to STE. This system could equip the Syrian government to further repress citizens. While this sale was not subject to the Export Administration Regulations (EAR) because the system had minimal U.S. content, Area subsequently transferred U.S.-origin network monitoring equipment to STE to monitor and test the CMS, a transaction that did require, but did not have, U.S. government authorization. This networking equipment was purchased from a California-based company and then hand-carried by Area personnel from Italy to Syria. While conducting the transfer, Area was aware that U.S. export regulations prohibited the unlicensed transfer of U.S.-origin items to Syria.

See the BIS proposed charging letter, settlement agreement and order here, and press release here.

Locomotive Producer Settles Antiboycott Violations with BIS

Electro-Motive Diesel, Inc. (EMD) will pay $26,350 to settle BIS allegations of 31 antiboycott violations occurring from 2005 to 2006. According to the order, EMD participated in transactions involving the sale and/or transfer of goods or services from the United States to Bangladesh. BIS alleged that, in conjunction with these activities, EMD, on 31 occasions, received a request to take an action that would have the effect of furthering or supporting a restrictive trade practice or unsanctioned foreign boycott. EMD then failed to disclose these requests to the BIS Office of Antiboycott Compliance as directed by the EAR. As long as EMD pays the penalty within 30 days of the September 8 order, it will not be debarred or suspended from export transactions.

Read the order here.

Former U.S. Army Officer Pleads Guilty to Violations and to Mishandling Classified Documents

Justin Gage Jangraw of Michigan, a former U.S. Army captain, who operated a business that sold military-grade weapons parts and accessories, admitted to violating the Arms Export Control Act (AECA) by exporting U.S. Munitions List (USML) items without a license. He also pled guilty to a separate charge of removing and retaining classified documents obtained while serving in the Army.

According to the statement of facts, between November 2009 and January 2011, Jangraw sold and exported from the United States 287 USML items destined for international customers in 34 countries without obtaining the licenses required to export defense articles, despite his awareness of the licensing requirements.

Jangraw’s sentencing is scheduled for November 21, 2014. To learn more about the guilty pleas, please see the press release issued by the U.S. Attorney’s Office for the District of Columbia.

Former California Business Executive Pleads Guilty to Illegal Export

John Nakkashian, former vice president for international sales at Air Shunt Instruments, Inc., an aircraft components manufacturer, pled guilty earlier this month to federal charges in connection with the unlicensed export of military technology. He admitted to knowingly making a false statement on a Shipper’s Export Declaration that a USML item, a military gyroscope being sent to Thailand, did not require an export license. Nakkashian also illegally exported other military components to Dubai without obtaining the necessary export licenses.

He was charged with four counts of violating the AECA in 2008, but fled the country and was considered a fugitive. Air Shunt was also fined $250,000 in 2008 for the false statements related to the Thailand shipments. Court documents indicate that Air Shunt took disciplinary action against Nakkashian and developed new standards of conduct and internal compliance systems designed to prevent or detect violations.

For more information, please see coverage at Los Angeles Daily News.

Pennsylvania Man Pleads Guilty to Shipping Equipment to Syria

In mid-September, Harold Rinko, 72, of Hallstead, Pennsylvania, pled guilty in federal district court to conspiracy to illegally export laboratory equipment, including items used to detect chemical warfare agents, from the United States to Syria. Admitting to this violation of federal law, Rinko said the conspirators exported items through third-party countries to customers in Syria without the required licenses from BIS.

The factual stipulation Rinko signed indicates that conspirators created false invoices that undervalued and mislabeled the purchased goods and additionally listed fictitious information regarding the identity and geographic location of these items. The items were transshipped to Syria from the United States through Jordan, the United Arab Emirates and the United Kingdom.

Rinko is facing a potential maximum sentence of five years’ imprisonment, a fine of $250,000 and a three-year term of supervised release.

To read more, please read the DOJ’s and BIS’ press releases and Washington Times news coverage.