Non-US citizens living and doing business outside the Untied States and business entities located and organized in other countries often find it difficult to understand how their wholly non-US sales and other commercial transactions could possibly be subject to US export controls and economic sanctions programs. The fact is US export controls and economic sanctions programs have broad application outside the United States. Transactions involving dual-use items controlled under the Export Administration Regulations (EAR) and defense articles subject to the International Traffic in Arms Regulations (ITAR) can require approvals from the Department of Commerce or the Department of State if, for example, US-origin goods are re-exported from one foreign country to another foreign country, even if the subject transaction is conducted entirely by non-US persons operating outside the United States. Foreign-made products also may be subject to such approvals if they contain US content or are derived from US technology. Similarly, US country-specific economic sanctions administered by the Treasury Department’s Office of Foreign Assets Control (OFAC) can apply to non-US companies and persons. For example, OFAC’s Iranian Transactions Regulations prohibit re-exports to Iran by non-US persons of US-origin goods and services, and the Cuban Assets Control Regulations, which generally prohibit trade and other dealings with Cuba and Cuban nationals, expressly apply to the non-US subsidiaries of US companies.
Non-US companies violating US trade restrictions might also question how, as a practical matter, the United States can enforce its export control and economic sanctions regulations against them. Indeed, the difficulty in obtaining jurisdiction over non-US persons generally has meant that the “penalty” for such violations has been to add the foreign person to a denied parties list, such as OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List). US persons are prohibited from having dealings with any person or entity on the SDN List, thus potentially imposing an economic hardship on the SDN.
Based on the following examples, efforts by US agencies and courts to move more directly against non-US companies involved in activities considered noncompliant with US export controls and economic sanctions programs appear to be growing.
- The Department of Commerce Bureau of Industry and Security’s (BIS) Major Cases List reports that on July 17, 2008 a France-based company, Cryostar SAS, formerly known as Cryostar France, was sentenced in the US District for the District of Columbia to a US$500,000 criminal fine and two years of probation for its involvement in a conspiracy to illegally export US-origin cryogenic submersible pumps to Iran. On April 10, 2008 Cryostar pled guilty to three felony counts charging one count of conspiracy, one count of export without an export license and one count of attempted export without an export license. The conspirators, Cryostar France, a US company and another France-based company, developed a plan to conceal the export of cryogenic pumps to Iran. The US company would sell and export the pumps to Cryostar France, which would then resell the pumps to another company from France, with the ultimate and intended destination being the 9th and 10th Olefin Petrochemical Complexes in Iran.
- Qioptiq S.a.r.l., a Luxembourg-based optics company, entered into a consent agreement with the State Department’s Directorate of Defense Trade Controls (DDTC) this past December agreeing to pay US$25 million in fines and remedial compliance measures to settle 163 alleged violations of the ITAR. The violations involved unauthorized exports and re-exports of military-grade night vision components and technical data without required licenses from the DDTC, which were committed by certain Thales High Technology Optic Group companies and their predecessors prior to Qioptiq’s acquisition from Thales France in December 2005. The DDTC has long said that it considers an acquiring company to be strictly liable for export violations committed by the acquired company. Some of the unauthorized transfers and retransfers of technical data arose in connection with a technical assistance agreement (TAA) between US-based Thales Optem Inc. and Singapore-based Thales Electro-Optics Pte Limited. First, the US company started exporting technical data to the Singapore company prior to the execution of the TAA. Second, the US company exported enhanced night vision goggle (ENVG) technical data of ITT Night Vision, which was outside the scope of technical data to be transferred under the TAA. Moreover, the US company concealed the ENVG exports by marking the technical data as SNVG (special night vision goggle). An email to the Singapore company uncovered by the DDTC stating that the SNVG label was a “decoy” bolstered the DDTC’s charge of misrepresentation and omission of facts regarding these transactions allegedly made under the TAA.
- On January 9, 2009 Lloyds TSB Bank plc entered into a deferred prosecution agreement with the Department of Justice (DOJ) in which Lloyds agreed to pay US$350 million for violating OFAC’s trade sanctions against Iran and Sudan. The bank’s actions that triggered the case involved “stripping” information from US dollar payment instructions, so-called SWIFT messages, that would have revealed to US banks that US dollar payments originated by Lloyds were for certain of its Iran- and Sudan-based customers. This conduct, according to the charges, resulted in willful exportation of services from the United States to Iran and Sudan prohibited by US economic sanctions regulations. Although none of Lloyds’ US branches were involved, the DOJ viewed Lloyds’ use of US banks to service its customers in Iran and Sudan as constituting an export of services from the United States by Lloyds.