Intel Subsidiary Agrees to $750,000 Penalty for Unauthorized Encryption Exports
Wind River Systems in California, a wholly owned subsidiary of Intel Corporation, has agreed to a $750,000 settlement with the BIS for alleged violations of the encryption controls of the Export Administration Regulations (EAR). The violations involved 55 unauthorized exports of encryption software products between 2008 and 2011, valued at $2.9 million, to organizations in China on BIS’s restricted party list, as well as to foreign government customers.
The civil penalty marks the first time BIS penalized a company for unlicensed encryption exports instead of issuing warning letters in response to such violations. The assistant secretary of commerce for enforcement explained that the BIS decision was based on the ongoing nature of the violations over a period of three years. BIS considered the company’s voluntary disclosure a mitigating factor.
Foreign Subsidiary of Texas Oil Firm Pleads Guilty to Illegally Exporting Drilling Equipment to Syria and Agrees to Pay $1.6 Million
Robbins & Meyers Belgium S.A., a subsidiary of Texas-based Robbins & Meyers Inc., pled guilty earlier this month to violations of the International Emergency Economic Powers Act (IEEPA) and the EAR. The Belgian subsidiary admitted to four illegal reexports and transshipments of stators, components of oil extraction equipment made from U.S.-manufactured steel, to a customer in Syria. An internal auditor from the parent company flagged the exports in May 2006, and Robbins & Meyers Inc. directed its Belgian subsidiary to stop shipments. Despite this directive, the subsidiary continued shipments between August 2006 and October 2006, and then attempted to conceal shipping documents from government investigators.
The subsidiary will pay $1 million in criminal fines and serve a term of corporate probation. The company must also forfeit the proceeds of the four illegal exports, amounting to $31,716. A parallel settlement agreement with BIS amounted to an additional $600,000 in civil penalties. Commenting on the steep fines and penalties, government officials cited their resolve to prosecute those who “flout” export control laws and to “hit companies that do business with Syria where it hurts most: the bottom line.”
Florida Healthcare Company Settles with OFAC for Violations of Multiple Sanctions Programs
Bupa Insurance Company (BIC), Bupa Worldwide Corporation (BWW) and USA Medical Services Corporation (USAMED)—Florida corporations and affiliates of a UK-based international healthcare group—agreed to a $128,704 settlement with OFAC for 39 apparent violations of the Narcotics Trafficking Sanctions Regulations (NTSR), the Foreign Narcotics Kingpin Sanctions Regulations (FNKSR), and the Cuban Assets Control Regulations (CACR) that occurred from March 26, 2008 to March 1, 2011.
The three companies, collectively “Bupa Florida,” allegedly failed to monitor or screen health insurance policyholders, dependents or providers against OFAC’s Specially Designated Nationals and Blocked Persons List (“SDN List”). According to OFAC allegations, BWW and USAMED provided insurance support services, such as claims processing, for healthcare policies to individuals on OFAC’s SDN List under the NTSR, and they also processed and paid a policyholder’s reimbursement claims for medical treatment in Cuba in violation of the CACR. BIC allegedly provided health insurance coverage to a dependent on an insurance policy who was named on the SDN List under the NTSR and FNKSR.
OFAC determined that Bupa Florida voluntarily self-disclosed the apparent violations and that the violations constituted a non-egregious case. The base penalty for the apparent violations was $95,337. The higher settlement amount apparently reflects OFAC’s consideration of a number of aggravating factors in this case, among them that Bupa Florida: 1) acted with reckless disregard for U.S. sanctions; 2) knew or had reason to know that its policyholders and beneficiaries were on the SDN List; and 3) did not appear to have an OFAC sanctions compliance program at the time of the violations.
BIS Denies Export Privileges to Individuals Convicted of Export Violations
At the end of September 2014, BIS issued two orders imposing 10-year denials of export privileges to Demetrio Cortez-Salgado and Ming Xie, respectively. Cortez-Salgado was convicted last year in the U.S. District Court for the Eastern District of California for violations of the Arms Export Control Act (AECA) involving unlicensed exports from the United States to Mexico of rifles controlled under the U.S. Munitions List (USML). He completed his prison term in November 2013 and is now prohibited from engaging in any transactions involving exports of items subject to the EAR until September 11, 2023.
Xie was convicted last year in the U.S. District Court for the District of New Jersey for violations of the AECA and IEEPA for unlicensed exports to China of U.S.-origin power amplifiers, some of which were considered defense articles subject to the International Traffic in Arms Regulations (ITAR) and others that were subject to the EAR. BIS extended the denial order to Xie’s company, Horizon LR Systems, in order to prevent evasion of the order, valid through May 22, 2023.
Temporary Denial Order Issued for Illegal Export of Crime Control Items to Russia and China
BIS issued a Temporary Denial Order (TDO) to suspend the export privileges of Utah companies X-TREME Motors LLC and XTREME Outdoor Store, and three of their corporate officers for making more than 200 exports of items controlled under the EAR for crime control reasons to Russia and China without obtaining required BIS authorization. The companies misrepresented information on customs declarations, falsely stating that packages contained ATV parts when, in fact, the shipments contained rifle scopes. The TDO is in effect for 180 days and may be renewed.
Illinois Man Pleads Guilty to Illegally Exporting Carbon Fiber and Other Controlled Items to Pakistan
Bilal Ahmed of Illinois, president and owner of Trexim Corp., pled guilty earlier this month to federal charges in connection with the unlicensed export of dual-use technology in violation of the IEEPA. Ahmed admitted to the unlicensed shipment in 2009 of carbon fiber and in 2013 of microwave laminate to Pakistan’s Space and Upper Atmosphere Research Commission, knowing that the dual-use goods required a BIS export license. He was arrested in March of this year while attempting to ship a dual-use thermal imaging camera to Pakistan.
Ahmed’s sentencing is scheduled for January 2015. To learn more about the guilty plea, see the FBI press release.
Russian National Receives 18-Month Prison Sentence for Smuggling High-Tech Night-Vision Technology to Russia
Earlier this month, the U.S. District Court for the District of Delaware sentenced Dmitry Ustinov to an 18-month prison term and three years of supervised release. Ustinov pled guilty in July 2014 to conspiring to export high-tech military technology, including night-vision devices and thermal imaging scopes, to Russia. He faced a maximum penalty of five years in prison with three years of supervised release and a $250,000 fine. Ustinov will be deported at the conclusion of his 18-month sentence.
Former Taiwan Resident Pleads Guilty to Violation of Anti-Proliferation Laws
Earlier this month, Hsien Tai Tsai pled guilty in the U.S. District Court for the Northern District of Illinois for conspiracy to defraud the United States in its enforcement of the sanctions against proliferators of weapons of mass destruction (WMD) and their supporters that are administered by the OFAC pursuant to Executive Order No. 13382. In January 2009, OFAC designated Tsai and two Taiwan-based companies with which he was associated as WMD proliferators. Following the designation, Tsai and the designated companies continued conducting business transactions, but tried to conceal their involvement by using different company names, such as Trans Multi Mechanics (TMM). Tsai admitted involvement in the September 2009 purchase of equipment from a Chicago-based company and export to Taiwan using TMM. Tsai was arrested in Estonia in May 2013 and extradited to the United States.
Upon sentencing on December 5, 2014, Tsai faces a maximum penalty of five years imprisonment and a $250,000 fine.