As evidenced by the numbers, export investigations are increasing significantly – and so are the penalties. Export enforcement penalties have increased twenty-fold in the past few decades, as evidenced by the fines that made headlines in recent years – for example:
- Weatherford International agreed to pay $100 million in export penalties in 2013;
- Schlumberger paid $232 million in 2015; and
- ZTE was fined $1.19 billion in 2017.
Since 2001 the three major export licensing agencies – the Department of Commerce, the State Department and Treasury – have significantly increased the size and number of penalties. The question remains: why?
In the 1980s, there was usually only one US customs inspector (now known as Customs and Border patrol officers) overseeing exports at each major US port. This inspector was tasked with reviewing only a few export licences each day. Inspectors did not often open crates and containers or interview exporters. There was no team of officers looking for smugglers or a task force of agents assigned to investigate potential violations and suspicious companies or develop confidential informants.
However, the landscape slowly started to change with the creation of the Department of Commerce's Office of Export Enforcement under the new Export Administration Act. This agency was tasked solely with investigating export violations, as US Customs was heavily involved in the US government's war on drugs at that time. Even so, throughout the 1990s, it was difficult to obtain a criminal prosecution for a dual-use export violation and the administrative penalties were mere slaps on the wrist for large multi-national corporations. Any significant penalties that were placed on these companies were usually in the range of tens and hundreds of thousands of dollars.
However, the new century ushered in a new reality following the events of 9/11. Numerous traditional law enforcement agencies entered into or ramped up their commitment to investigate export violations. They hired agents, created task forces, integrated state and local law enforcement officers and prepared prosecutors. Naturally, the corresponding penalties started to rise. The government raised the $11,000 cap per administrative penalty for accidental export violations to $50,000. Over time, this penalty has increased to $289,238 per violation, with no limit on the number of counts that can be charged.
Today, the government has taken a harder line on the export community following the war on terror – and for good reason. The global economy has made it necessary for nearly all industries to do business internationally. To elicit the export community's assistance further, the government recently updated the regulations to provide significant mitigation allowance to companies that have previously cooperated with law enforcement. Although there is now a small army of agents in place of the single inspector, this regulatory change has provided a significant tool for agents to use.
As agents can now be expected to open crates, create task forces, investigate potential violations, conduct undercover operations and knock on doors, the question becomes what should enterprises and individuals do when they are faced with an agent at their door.
Federal agents approach manufacturers, exporters and shippers for various reasons. All three major export investigative agencies conduct routine 'knock and talks' as a way to gather information, understand a company or an industry and verify that the target understands the regulations. The Department of Commerce refers to these visits as 'outreach visits', the Department of Homeland Security calls this process 'shield America', while the Federal Bureau of Investigation maintains a community outreach programme. While these visits are often innocuous and as advertised, they may have an underlying purpose. As such, if a company receives one of these visits, it must consider whether:
- it may be under investigation;
- its employees are conducting illegal side transactions; or
- it has committed a technical violation and thus the government is seeking to ascertain the entity's knowledge of the law.
On the one hand, companies should consider whether the agent is there to provide them with information. Agents might be there to discuss a consignee, product or particular shipment informally.
How companies respond to these visits must be assessed on a case-by-case basis. In making that decision, a company should consider whether it:
- has solid knowledge about its customers;
- knows the red flags regarding its products and industry and the trans-shipment points for embargoed countries; and
- has an export compliance programme in place, as well as an updated manual which all relevant employees must follow.
If the company's employees can answer these questions in the affirmative, it would be prudent to allow the agent to enter. However, if the company has any doubts regarding the validity of its exports or compliance programme, it is paramount to be prepared before an agency visit. Since it is impossible to know when that knock is coming, it is advisable to seek outside counsel now – before it is too late.
Finally, companies that assist the government in any way should ensure that they maintain adequate records of the people, place and information provided, as this may help to save the company from a future penalty – a penalty which is likely to be substantial.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.