Directorate of Defense Trade Controls (DDTC) – US Department of State
Washington Man Pleads Guilty to Conspiracy to Unlawfully Export Radiation-Hardened Semiconductor Devices to China. Lian Yang of Woodinville, Washington, pleaded guilty to conspiring to unlawfully export defense articles under the US Munitions List (USML) in violation of the Arms Export Control Act. According to the criminal complaint, Mr. Yang attempted to purchase and export from the United States to China 300 radiationhardened, programmable semiconductor devices, which require export authorization from the Department of State. The devices are said to have no purpose outside military or aerospace use. According to news reports, US military sources have said that the devices are most likely for the guidance systems of China’s newest missiles, spy satellites and its next-generation space program. Mr. Yang allegedly planned to set up a shell company and create false purchase orders stating that unrestricted items were being exported, rather than the ITAR-controlled semiconductors. Allegedly, he agreed to pay US$620,000 for the 300 devices and arranged a wire-transfer of US$60,000 to undercover agents as partial payment for a sample of five devices.
Former NASA Employee Pleads Guilty for Unlawful Exports of Infrared Military Technology to South Korea. Kue Sang Chun, formally an electrical engineer at the NASA Glenn Research Center in Ohio, pleaded guilty in the Northern District of Ohio with one count of violating the Arms Export Control Act and one count of filing false tax returns. According to the two-count information filed by the government, Mr. Chun knowingly and willfully exported defense articles under the USML to South Korea without an export license or authorization from the Department of State. Specifically, Mr. Chun unlawfully exported several infrared focal plane array detectors and infrared camera engines to South Korea for use in Korean government projects. He also entered into an agreement with a Korea-based company to design, build and test electronics to support the unauthorized exports.
Two Chinese Nationals Sentenced for Illegally Exporting Military and Dual Use Electronics to China. Zhen Zhou Wu and Yufeing Wei were sentenced to prison terms of 97 months and 36 months, respectively, for conspiring to violate US export control laws, illegally exporting controlled electronic equipment from the United States to China, and filing false shipping documents with the Department of Commerce. Mr. Wu and Ms. Wei used Chitron Electronics, Inc., a Waltham, Massachusetts company founded and controlled by Mr. Wu and managed by Ms. Wei, to procure defense articles and EAR-controlled equipment from US suppliers and then export these items to China through Hong Kong. Military factories and research institutes in China were among those to whom these controlled-items were shipped. The illegally exported defense articles are primarily used in military phased array radar, electronic warfare, military guidance systems and military satellite communications. The EAR-controlled items that were unlawfully exported can be used in electronic warfare, military radar, satellite communications and space applications. Chitron Electronics, Inc. was also fined US$15.5 million in connection with this unlawful conduct.
Bureau of Industry and Security (BIS) – US Department of Commerce
Metal Distributor Reaches US$575,000 Settlement With BIS for Unlicensed Exports to China and Israel. TW Metals, Inc. has agreed to pay a US$575,000 civil penalty to settle charges of 48 unauthorized exports of titanium alloy to China and one unauthorized export of aluminum bar to Israel. TW Metals transshipped these items, which are classified under ECCN 1C202 and controlled for nuclear nonproliferation reasons, through Canada. TW Metals filed a voluntary self-disclosure with BIS regarding these unauthorized exports.
Supplier of Drivetrain Systems and Components Settles With BIS for EAR Violations. ArvinMeritor, Inc. which recently changed its name to Meritor, Inc., has agreed to pay a US$100,000 civil penalty to settle allegations of 15 EAR violations. BIS charged ArvinMeritor for violating the EAR by exporting without the required license or license exception the following items or technology that are controlled for national security reasons: (i) various axles from the United States to China; (ii) technical drawings of carrier castings to fit the axle of certain military vehicles from the United States to Brazil; (iii) technical drawings of axle assemblies for a tractor-trailer and heavy-duty truck to an Indian national; (iv) technical drawings of rear housing casts for certain military vehicles from the United States to China, India, Mexico and South Korea; and (v) seal assemblies for certain military vehicles from the United States to France. BIS also charged ArvinMeritor with causing, aiding and abetting the unlicensed export from the United States to Italy by providing technical drawings of a gear drive controlled for national security reasons to the US sales office of an Italy-based company, which then forwarded the drawings to its offices in Italy. ArvinMeritor voluntary notified BIS of these unlicensed exports.
Office of Foreign Assets Control (OFAC) – US Department of the Treasury
US Distributor Agrees to Pay US$20,000 to Settle Allegations of Iran Sanctions Violations. Aegis Electronic Group, Inc., a US-based distributor of industrial imaging products including cameras, monitors and related control units, entered into a US$20,000 settlement with OFAC for alleged violations of the Iran Transactions Regulations. Between August 2008 and January 2009, Aegis exported two camera control units for US$2,685 to Austria with knowledge that these items were intended for reexport to Iran. Aegis did not voluntary disclose these unlawful shipments to OFAC. In augmenting the penalty from the US$10,000 base amount for these violations, OFAC considered the allegedly knowing and willful conduct by an Aegis employee and that Aegis lacked a serious compliance program. OFAC did, however, consider the company’s later implementation of a compliance program and training, as well as, no evidence that any of its senior management participated in the apparent violations as mitigating factors.
US Insurance Brokerage Firm Pays US$122,408 to Settle Violations of Iran Transactions Regulations. McGriff, Seibels & Williams of Texas, Inc. settled allegations of violations of the Iran Transactions Regulations with OFAC for US$122,408. McGriff allegedly designed, revised and placed with foreign insurers six commercial multiple peril insurance polices that insured the risks of a submersible oil rig in Iran’s waters during the period from May 1, 2004 to April 31, 2005. The foreign insurers received US$453,364 in combined premiums for these insurance policies. McGriff voluntary disclosed the alleged violations to OFAC. In determining the settlement amount OFAC took into account: the specialized nature of the insurance policies, which involved Iran’s petroleum industry, undermined the objectives of the sanctions program; a senior employee engaged in the conduct outside the knowledge of the company’s senior management; McGriff had no prior record of violating OFAC sanctions programs; and McGriff cooperated with OFAC throughout the investigation.
Barclays Reaches US$176 Million Settlement with OFAC as Part of Global Settlement With the Department of Justice and New York County District Attorney’s Office. Barclays Bank PLC has agreed to settle allegations of violations of the Burmese Sanctions Regulations, Cuban Assets Control Regulations, Iranian Transactions Regulations and Sudanese Sanctions Regulations with OFAC for US$176 million. Barclays has also entered into deferred prosecution agreements with the Department of Justice (DOJ) and New York County District Attorney’s Office (NYCDA) in connection with these alleged violations, whereby it has agreed to a forfeiture of US$298 million and implementation of stringent compliance measures. Barclay’s monetary settlement with OFAC will be deemed satisfied upon payment of the US$298 million to the DOJ and NYCDA. Allegedly, Barclays knowingly and willingly processed more than US$100 million through US banks on behalf of banks and persons in Cuba, Iran, Libya, Sudan and Burma and implemented practices designed to circumvent filters at US banks designed to detect transactions in violation of US sanctions programs. These practices apparently included the use of cover payments to avoid referencing sanctioned parties as well as amending and reformatting US dollar payment messages to remove information identifying sanctioned entities. Barclays voluntary disclosed this conduct to OFAC. OFAC mitigated the penalty from a US$219 million base amount due to Barclay’s substantial cooperation, remediation and lack of a prior recent history of OFAC violations. The fact that a number of the transactions in Sudan involved the export of agricultural products also influenced the mitigation of the penalty amount.
Federal Corrupt Practices Act (FCPA) – US Department of Justice and US Securities and Exchange Commission
Japan-based Engineering and Construction Company to Pay US$218.8 Million to Resolve an FCPA Investigation. JGC Corporation has agreed to pay a US$218.8 million criminal penalty as part of a deferred prosecution agreement (DPA) to settle violations of the FCPA for its participation in a scheme to bribe government officials in Nigeria to obtain engineering, procurement and construction (EPC) contracts to build liquefied natural gas (LNG) facilities on Bonny Island, Nigeria. The scheme involved a four-company joint venture, which included JGC, Kellogg Brown & Root Inc. (KBR), Technip S.A., and Snamprogetti Netherlands B.V., that was awarded four EPC contracts between 1995 and 2004 to build the LNG facilities. The DOJ alleged that JGC authorized the joint venture to hire two agents, Jeffery Tesler and a Japan-based trading company, to pay bribes to high-level and lower-level officials in Nigeria, respectively. The joint venture paid approximately US$132 million to a Gibraltar corporation controlled by Tesler and more than US$50 million to the Japan-based trading company to further the scheme. The DOJ alleged that JGC intended these payments, in part, to be used to bribe government officials in Nigeria. The other members of the joint venture and several individuals involved in the scheme have pleaded guilty, entered into DPAs or settled civil enforcement actions with the US government. In total, the US government has obtained US$1.5 billion in penalties for the FCPA violations arising from this bribery scheme.
Johnson & Johnson Reaches a US$70 Million Settlement With the DOJ and SEC for Violations of the FCPA. Johnson & Johnson and its subsidiaries resolved corruption related investigations with the DOJ and SEC. Johnson & Johnson agreed to pay a US$21.4 million fine to settle criminal charges brought by the DOJ and US$48.6 million in disgorgement and prejudgment interest to resolve the SEC enforcement action. In the DPA, Johnson & Johnson admitted that its subsidiaries, employees and agents paid bribes to publicly-employed health care providers in Greece, Poland and Romania to influence the purchase of Johnson & Johnson and its subsidiaries’ products. Johnson & Johnson also admitted that wholly-owned subsidiaries based in Belgium and the UK secured 18 UN Oil for Food Program pharmaceutical sales contracts through the payment of kickbacks to Iraq. The payments described above were euphemistically referred to as “cash incentives,” “sales promotional costs,” “local support payments,” “civil contracts” or “commissions” and were recorded as such in the corporate books and records of the subsidiaries. These inaccurate books and records were then incorporated into Johnson & Johnson’s books and records for the purposes of preparing financial statements filed with the SEC.
The DPA has a term of three years and contains numerous conditions common in recent DPAs in the FCPA context. However, the DPA contains several additional and onerous conditions not found in recent FCPA-related DPAs. For example, the DPA requires Johnson & Johnson to implement a system of annual certifications by senior managers in each of the company’s corporate-level functions, divisions and business units in each foreign country wherein they confirm their local standard operating procedures adequately implement the company’s anticorruption policies and procedures, including training requirements, and that they are not aware of any FCPA or other corruption issues that have not already been reported to corporate compliance. This condition and several other onerous and expensive conditions have not appeared in recent prosecutorial agreements and may indicate the DOJ has raised the standard in FCPA compliance.
On the same day the DOJ and SEC resolved their enforcement actions, the UK’s Serious Fraud Office (SFO) resolved its prosecution of DePuy International Limited, a UK-based Johnson & Johnson subsidiary, which the DOJ had referred to the SFO. The conduct of certain DePuy International personnel figured prominently in the US enforcement actions. To resolve the UK matter, the SFO sought and obtained a civil recovery order in the amount of £4.829 million, plus prosecution costs. In addition to the US and UK enforcement actions, authorities in Greece have reportedly frozen at least €5.785 in assets belonging to another Johnson & Johnson subsidiary.