On December 3, 2019, the U.S. Department Justice (DOJ) announced charges against two Russian nationals, two Italian nationals, a U.S. citizen, and various companies for violating and conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Export Control Reform Act of 2018 (ECRA), conspiracy to commit wire fraud, and conspiracy to commit money laundering. Citing a newly unsealed indictment , the DOJ’s press release alleges the defendants conspired to purchase a U.S.-manufactured power turbine for an unnamed Russian government-controlled business and attempted to evade U.S. sanctions by concealing the true end user of the equipment. The prosecution highlights the U.S. Government’s increased efforts to enforce export controls imposed on exports to Russia’s oil and gas industry under the Export Administration Regulations (EAR) as a result of Russian related sanctions.
Overview of Enforcement Action
According to the indictment, an unnamed Russian government-controlled oil and gas industry business contracted with Oleg Vladislavovich Nikitin and his Russian-based company KS Engineering (KSE) to purchase a Vectra 40G power turbine from a U.S.-based manufacturer for approximately $17.3 million. The DOJ alleges that the Russian government-controlled company intended to use the Vectra 40G on a Russian Arctic deepwater (deeper than 500 feet) drilling platform. The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) had placed the Russian government-controlled company on the Entity List in September 2014 for being involved, or posing a significant risk of becoming involved, in activities contrary to the United States’ national security or foreign policy interests.. Thus, EAR Section 744 (Entity List) and EAR Section 746.5 (Russian Industry Sector Sanctions) expressly prohibited any unlicensed shipments or transfers of a Vectra 40G to the Russian company for that purpose.
Seeking to evade U.S. export controls, Nikitin, KSE employee Anton Cheremukhin, and KSE allegedly hired Gabriele Villone, his Italian-based company GVA International Oil and Gas Services (GVA), and GVA employee Bruno Caparini to obtain the Vectra 40G on their behalf. In turn, Villone, Caparini, and GVA allegedly hired Dali Bagrou and his U.S.-based company World Mining and Oil Supply (WMO) to procure the Vectra 40G from a U.S.-based manufacturer (referred to in the indictment as “Company A”) and to have the Vectra 40G shipped overseas.
According to the indictment, the defendants conspired to conceal the true end user of the Vectra from both Company A and the U.S. Government by submitting false documentation that stated the Vectra 40G would be used by a U.S. company in and around Atlanta, Georgia. The indictment charged Nikitin, Cheremukhin, KSE, Villone, GVA, and Caparini, with violating and conspiring to violate IEEPA, ECRA, and the EAR, as well as with conspiracy to commit wire fraud and conspiracy to commit money laundering. Bagrou and WMO are charged with conspiracy to commit wire fraud and conspiracy to commit money laundering. Nikitin, Villone, and Bagrou are currently awaiting trial.
This case underscores the importance of applying skepticism when assessing information obtained from customers as part of your company’s export control and sanctions compliance efforts. Reviewing information with a skeptical eye and being alert to red flags indicating potential misstatements and false documentation can help your company avoid potential violations and costly penalties.
As stated in the indictment, Company A’s compliance program required the defendants to provide end use and end user information to Company A in relation to their attempts to procure the Vectra 40G. However, Company A did not simply take the defendants’ responses at face value, but rather questioned certain statements and information. For example, in September – October 2017, Bagrou allegedly attempted to procure a copy of the Vectra 40G’s service manual from Company A by, according to the Government, falsely stating WMO would be the end user and that the Vectra 40G would be used in Atlanta, Georgia. According to the indictment, “[o]n or about October 24, 2017, Company A replied to BAGROU that it knew the Commodity would not be installed in Atlanta, Georgia, and reiterated that Company A required full disclosure of end use/end user information ‘to comply with EU/US export law.’”
Additionally, over the course of December 2017 – January 2018, Caparini allegedly approached Company A again regarding the purchase of the Vectra 40G. When asked to provide specific information regarding the intended end use and end user for the equipment, Caparini allegedly falsely informed Company A that “we are the end User in name of our owned Group Company: GVA International DMCC, based in Dubai UAE as we are the owner of all equipment. Our intention is to produce and sell Energy not the equipment.” Ultimately, Company A declined the sale.
Although not explicitly referenced in the indictment, it appears Company A may be cooperating with the U.S. Government in the investigation and may have alerted the authorities to the defendants’ activities. Cooperating with the Government in such investigations not only demonstrates the company’s commitment to compliance, but it also builds credibility and goodwill with the Government. Depending on the timing and degree of the company’s cooperation, cooperating with the Government and disclosing suspected attempts by third-parties to circumvent U.S. sanctions and export controls could potentially result in future leniency from the Government should the company later find itself in the crosshairs of an enforcement action.