Bass, Berry, and Sims’ enforcement roundup brings notable enforcement actions, policy changes, interesting news articles and a bit of our insight to your inbox every month.
International Trade Enforcement Roundup
You are reading Bass, Berry, and Sims’ new enforcement roundup, where we bring notable enforcement actions, policy changes, interesting news articles and a bit of our insight to your inbox every month. October 2022 was an active month for enforcement, with the Department of Treasury updating Committee on Foreign Investment in the United States (CFIUS) guidelines and the Departments of Justice (DOJ) and Commerce (DOC) taking multiple actions. To stay up to date, subscribe to our GovCon & Trade blog. If you have questions about any of the actions mentioned and how they relate to your business, contact our firm’s international trade team. We welcome your feedback and encourage sharing this newsletter with anyone who may be interested.
Overview
Russia continues to be the focus of enforcement efforts. On October 14, the Office of Foreign Assets Control (OFAC), the Bureau of Industry and Security (BIS), and the Department of State issued an alert detailing how U.S. government measures have impacted the Russian military-industrial complex and targeted sanctions evaders. Some highlights are detailed further below. October was a busy month for China-specific enforcement actions and regulatory changes, which were headlined by the new China-related Semiconductor rules. These rules seek to restrict China’s ability to access both U.S. advanced chips and U.S. talent. These new controls will have a major impact on the Chinese and American chip industries and may signal more changes to come.
Seagate Technology Holdings, an American data storage company, was issued a “proposed charging letter” for potentially unauthorized business transactions with Huawei .
Cryptocurrency was also a target of enforcement in October. An American virtual currency firm based in Washington state settled 116,421 violations of multiple sanctions programs, and agreed to pay a penalty of more than $24 million.
Following a Presidential Order linking CFIUS reviews directly to the president’s national security prerogatives, the Department of Treasury released new CFIUS Enforcement and Penalty Guidelines .
The Commerce Department also updated antiboycott rules to strengthen penalties and bolster compliance.
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Russia
Five Russian Nationals and Two Venezuelan Oil Traders Charged in Global Sanctions Evasion and Money Laundering Scheme (DOJ) Those involved. Yury Orekhov, Artem Uss, Svetlana Kuzurgasheva, Timofey Telegin, and Sergey Tulyakov (Russian Nationals); Juan Fernando Serrano Ponce (Spanish National); and Juan Carlos Soto (Venezuelan National).
Charges with penalties. A 12-count indictment (a maximum of 30 years in prison).
What happened? The DOJ unsealed a 12-count indictment on October 19, alleging the defendants laundered millions for Russian oligarchs, smuggled hundreds of millions of barrels of oil, and illegally obtained U.S. military equipment. One defendant, Orekov, part owner and CEO of the German industrial equipment company Deutsche Industrieanlagenbau GmbH, used his company as a front to procure sensitive technologies from U.S. manufacturers, including advanced semiconductors and microprocessors used in fighter aircraft, missile systems, and smart munitions for Russian end-users. The scheme was highly complex, involving falsified shipping documents, a complicated web of shell companies, and even international couriers to obtain bulk cash.
Read the indictment here. Read the press release here.
Notably. The indictment provides a window into the underworld of international criminal syndicates involved in evading Russian sanctions. Both Orekhov and Uss have been arrested according to U.S. request.
European Nationals and Entities Indicted for Violating U.S. Laws for Their Attempt to Export a Dual-Use High-Precision Jig Grinder to Russia (DOJ) Those involved. Eriks Mamonovs, Vadims Ananics, and Janis Uzbalis (Latvian Nationals); CNC Weld (Latvian Entity); Stanislav Romanyuk (Ukrainian National); BY Trade OU (Entity of Estonia); other individuals in Russia and a Russian entity. Charges with penalties. Conspiracy (maximum of five years); Violation of the Export Control Reform Act (maximum of 20 years); Smuggling Goods from the United States (maximum of 10 years); International Money Laundering Conspiracy (maximum of 20 years); and Making False Statements to the DOC (maximum of 5 years). What happened? On October 19, the DOJ unsealed an indictment alleging Mamonovs, Amanics, Uzbalis, and Romanyuk conspired to smuggle a high-precision jig grinder into Russia. The Connecticut-made jig grinder has dual-use applications, as it can be used in nuclear proliferation and other defense programs. While the jig grinder does not require an export license to many countries, including the European Union, it does require a license for export to Russia. The United States, working with Latvian law enforcement, intercepted the jig grinder before its re-export to Russia. Ananics, Mamonovs, Uzbalis, and Romanyuk were all arrested.
Read the press release here.
Notably. The indictment demonstrates the long-arm of U.S. export controls, and the U.S. government’s willing to take enforcement action related to conduct occurring anywhere in the world – including with the support of regulators in allied countries. An export or re-export of U.S.-origin items need not involve U.S. citizens or entities for arrests to be made and penalties enforced.
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U.K. Businessman Graham Bonham-Carter Indicted for Sanctions Evasion benefiting Russian Oligarch Oleg Vladimirovich Deripaska (DOJ)
Those involved. Graham Bonham-Carter
Charges and penalties. Conspiracy to evade U.S. sanctions (maximum of 20 years); Violation of the International Emergency Economic Powers Act (IEEPA) (maximum of 20 years); and Wire Fraud (maximum of 20 years).
What happened? On October 11, Graham Bonham-Carter was indicted for violating U.S. sanctions. Bonham- Carter apparently began working for Russian oligarch Oleg Vladimirovich Deripaska in July 2003. In April 2018, OFAC designated Deripaska as a Specially Designated National (SDN). However, Bonham-Carter continued to work for Deripaska, engaging in over $1 million of illicit transactions to fund real estate properties in the United States for Deripaska’s benefit. Bonham-Carter also attempted to transfer art from the United States to the UK through misrepresentations, concealing Deripaska’s ownership of the art. Bonham-Carter was arrested, and the U.S. government is seeking his extradition.
Read the press release here.
Notably. The indictment further exemplifies the reach of U.S. sanctions laws. Special consideration should be given to any work done on behalf of or in furtherance of, those on the SDN list.
Intertech Trading Corp. Sentenced to Pay $140,000 for Failure to File Export Information on Shipments of Lab Equipment to Russia and Ukraine (DOJ)
Those involved. Intertech Trading Corporation (Intertech), a New Hampshire laboratory equipment distributor.
Charges with penalties. 14 felony counts of failure to file export information ($140,000 in fines and the imposition of a two-year corporate monitor).
What happened? On October 17, Intertech was sentenced to the maximum allowable fine for falsely describing the nature and value of the exported items on commercial invoices and shipping forms pertaining to exports to Russia, Ukraine, and elsewhere. The undervaluation allowed Intertech to avoid filing Electronic Export Information with the DOC and the Department of Homeland Security.
Read the press release detailing the sentencing here.
Notably. Mischaracterizing and undervaluing exports impair the effective administration of export control laws. Recently, the federal government has made it a priority to detect and enforce mislabeling. Companies with knowledge of potential deceptive behavior should consider self-disclosing violations to the DOC and DOJ.
Florida Man Guilty of Violating International Economic Powers Act (DOJ)
Those involved. Eddy Johans Coopmans
Charges with penalties. Conspiracy to smuggle goods out of the United States and to violate the International Emergency Economic Powers Act (IEEPA) (5 years in prison).
What happened? On October 5, Eddy Johans Coopmans, of Ponte Verde, Florida, pleaded guilty to conspiracy to smuggle goods out of the United States and violating the IEEPA. Coopmans, with a co-conspirator, agreed to export Space Grade Field Programmable Gate Array Circuits to Russia and Short Wave Infrared Cameras to China. Coopmans and the other individual conspired with perceived accomplices, paid them over $1 million for
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help smuggling items out of the United States, and made false statements to government regulators. Coopmans now faces up to 5 years in federal prison.
Read the press release detailing the plea agreement here.
Notably. Whether or not an export occurs, individuals who violate U.S. export control laws can be held responsible and punished with substantial jail time.
Russia Airlines - Temporary Denial Orders (TDO)
On October 13, BIS issued a TDO against URAL Airlines JSC (URAL) citing apparent ongoing violations of the comprehensive export controls imposed on Russia. URAL joins eight other Russian airlines under TDOs, each of which ban the companies from participating in transactions subject to the Export Administration Regulations (EAR), including exports from the United States and re-exports abroad. BIS also renewed previously issued TDOs against Aviastar-TU (April 21, 2022), UTair Aviation JSC (April 7, 2022), and PJSC Aeroflot (April 7, 2022). These renewed TDOs will remain in effect for an additional 180 days.
China
Seagate Technology Holdings Warned It May Be Charged (DOC)
Those involved. Seagate Technology Holdings, an American data storage company.
Charges and penalties. Charges TBD (up to $300,000 in penalties per violation or twice the value of the transaction for violating EAR).
What happened? On October 26, Seagate Technology Holdings disclosed it had been warned by the U.S. government that it may have violated export control laws when it provided hard disk drives to Huawei Technologies. The warning was made in a proposed charging letter issued by the DOC. Seagate apparently has taken the position that its hard disk drives are not subject to the EAR because the drives are not a direct product of U.S. technology or software, nor made from a plant that is itself a direct product of U.S. technology or software. The disk drives are made in China and Thailand.
Read the Reuters exclusive story here.
Notably. Huawei is on the DOC’s Entity List, and a license is required for exports and re-exports to Huawei, even for those items manufactured outside of the United States if they fall under the direct product rule or the de minimis rule. This is a test case of how far the DOC will go in interpreting the foreign direct product rule to capture foreign-made items. Stay tuned for developments on the case.
Cryptocurrency
OFAC Settles with Bittrex, Inc. for over $24 million Related to Apparent Violations of Multiple Sanctions Programs (Department of Treasury)
Those involved. Bittrex, Inc. (Bittrex) a virtual currency exchange based in Bellevue, Washington.
Charges and penalties. 116,421 violations of multiple sanctions programs. Bittrex agreed to pay over $24 million in penalties. The maximum applicable civil penalty was close to $35 billion.
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What happened? On October 11, OFAC announced that it settled with Bittrex for violating multiple sanctions programs. According to the announcement, Bittrex operated 1,730 accounts and processed 116,421 transactions totaling $263,451,600.13 in violations of OFAC-administered sanctions programs. Accounts from the Crimea region of Ukraine, Cuba, Iran, Sudan, and Syria – all regions where U.S. persons are barred from engaging in transactions – reputedly used the Bittrex platform between March 28, 2014, and December 31, 2017. While Bittrex policies and procedures suggested that the company knew OFAC requirements, the company had no internal controls until October 2017 to screen transactions and account holders for a sanctions nexus. From December 2015 through October 2017, Bittrex screened customers against the OFAC’s SDN List but did not scrutinize customers or transactions for a nexus to sanctioned jurisdictions. OFAC issued a subpoena in October 2017 to investigate potential violations. OFAC considered several aggravating factors, such as lack of due diligence and conveying economic benefit to persons in OFAC-sanctioned jurisdictions, as well as mitigating factors, such as Bittrex being a small and new company and fully cooperating with the government
The full enforcement action can be found here. The October 2021 OFAC compliance guidance for the virtual currency industry can be found here.
Notably. First, the settlement emphasizes that virtual currency companies are not exempt from compliance with sanctions programs. Second, the settlement highlights the need for sanctions compliance systems in business operations from the outset. While status as a new business can represent a mitigating factor, it is not a reason not to comply with government regulations.
Other Relevant Enforcement Actions
U.S. Department of Treasury, OFAC: Finding of Violation (FOV).
On October 18, OFAC issued a FOC against Nodus International Bank, a financial entity based in Puerto Rico, for engaging in transactions without the required OFAC license in violation of the Venezuelan Sanctions Regulations. An individual on the SDN List had an interest in the transactions. Additionally, OFAC found Nodus violated the Reporting, Penalties and Procedures Regulations (RPPR) for inadequately maintaining accurate records related to the blocked account. OFAC decided to issue an FOV instead of a civil penalty after weighing aggravating and mitigating factors. OFAC acknowledged Nodus’s lack of prior violations, the fact the company made a voluntary self-disclosure, Nodus’ remedial remedies, and the insignificance of the sanctions’ harm to determine an FOV was sufficient.
The web notice can be found here.
DOC BIS: Probationary Period.
On September 30, Thermotron Industries, Inc. of Holland, Michigan, settled with BIS for one unauthorized export of an environmental test chamber to South Korea in August 2012. In April 2016, after the export at issue, the EAR was revised, making an export license to South Korea unnecessary for the item. BIS denied export privileges for two years, which was suspended provided Thermotron does not violate the EAR. BIS also imposed mandatory export compliance training for relevant Thermotron personnel. Even a single violation from more than a decade ago can lead to enforcement action.
The settlement documents can be found here.
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DOC BIS: Order Denying Export Privileges for criminal convictions pursuant to Section 1760(e) of the Export Control Reform Act (ECRA) (formerly known as 11h denials):
On October 20, Claudia Delgadillo was denied export privileges until October 9, 2029 (10 years from the date of her conviction). Delgadillo was convicted of violating 18 U.S.C. § 554(a) for the attempted export of various rifles and handguns to Mexico. The 1760(e) denial order can be found here. On October 28, Jose Martin Gallegos-Luevanos was denied export privileges until January 6, 2030 (10 years from the date of his conviction). Gallegos-Luevanos was convicted of violating 18 U.S.C. § 554(a) for attempting to export rifles and magazines to Mexico. The 1760(e) denial order can be found here. On September 30, Bryan Villanueva-Valles was denied export privileges until January 10, 2030 (10 years from the date of his conviction). Villanueva-Valles was convicted of violating 18 U.S.C. § 554(a) for attempting to export various rifles and handguns to Mexico. The 1760(e) denial order can be found here. On September 30, John James Peterson was denied export privileges until November 14, 2024 (5 years from the date of his conviction). Peterson was convicted of violating 18 U.S.C. § 371 for conspiring to export AR-15 assault rifle parts to Argentina without the required State Department licenses. The 1760(e) denial order can be found here. On September 30, Tito Calderon Olvera was denied export privileges until February 26, 2025 (5 years from the date of his conviction). Olvera was convicted of violating 18 U.S.C. § 554(a) for attempting to export handguns and magazines to Mexico. The 1760(e) denial order can be found here. On September 30, Mehdi Hashemi was denied export privileges until July 6, 2030 (10 years from the date of his conviction). Hashemi was convicted of violating the International Emergency Economic Powers Act for attempting to export computer numerical control machines to Iran via the United Arab Emirates. The 1760(e) denial order can be found here.
Enforcement Policy Updates
New CFIUS Guidelines
The guidelines. On October 20, CFIUS released new, non-binding Enforcement and Penalty Guidelines (Guidelines). The Guidelines follow last month’s Executive Order linking CFIUS reviews directly to the president’s national security prerogatives. In particular, the Guidelines detail the following: • Categories of conduct that constitute violations. • Sources of information CFIUS relies upon to determine whether a violation has occurred. • The process for developing and imposing penalties. • Aggravating and mitigating factors that CFIUS evaluates when deciding whether to impose a penalty. Notably. The issuance of the Guidelines pulls back the curtain a bit on how CFIUS should operate and the methods it uses to determine when and how to impose penalties. It is also indicative of an increasingly proactive and assertive CFIUS. While 2021 was historically busy for CFIUS, given the expansion of CFIUS jurisdiction over the past several years, it is likely that activities will increase even more in the future. Read more about the new guidelines in our Bass, Berry & Sims blog.
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Updated Antiboycott Rules
Strengthening antiboycott measures. On October 6, the DOC announced the strengthening of the antiboycott enforcement program. Antiboycott rules prohibit U.S. persons from engaging in foreign government-sanctioned boycotts against U.S. allies. The new rules impose enhanced penalties, reprioritize violation categories, require admissions of misconduct, and place a renewed focus on foreign subsidiaries. Notably. BIS has frequently pushed the industry to implement effective compliance programs. The antiboycott policy changes appear to be part of that effort. With the enhanced antiboycott laws, companies should reevaluate their compliance programs, ensuring antiboycott activities are covered, and foreign subsidiaries of U.S. companies understand their obligations.
Expansive, New Export Controls on Semiconductors
New controls. On October 7, BIS announced new controls on semiconductor exports to China and established new criteria for making additions to the Entity List. BIS added new control classifications to the Commerce Control List (CCL) in the EAR for advanced chips and manufacturing equipment for such chips; three new foreign direct product rules; U.S. person controls; and catch-all controls related to supercomputers and semiconductors. Read more about the controls in our Bass, Berry & Sims blog.
Notably. The two new rules cover considerable ground. They are complicated and highly fact-specific. Companies should carefully review the rules and note, in particular, that certain provisions have different effective dates.
What comes next? National Security Advisor Jake Sullivan articulated the administration’s position on American technological leadership in September when he called to develop “as large of a lead as possible” in critical technologies rather than maintain the old approach of keeping a “relative” advantage over adversaries. According to reports, the Biden administration is currently weighing imposing new controls limiting China’s access to quantum computing and artificial intelligence software. The Administration reportedly continues to outline an outbound investment review mechanism via Executive Action. Additionally, reports suggest that the United States is pushing for a deal with its allies to implement the recent semiconductor rules jointly.
If you have any questions about these enforcement updates and how they may impact your business, please contact the authors.
International Trade Practice Group
The Bass, Berry & Sims International Trade Practice Group helps clients navigate the complex regulations associated with a global marketplace. Our team is experienced in guiding clients through challenging issues related to economic sanctions (OFAC), exports (DDTC and the ITAR; BIS and the EAR), imports (CBP), anti-bribery (DOJ and SEC), anti-boycott regulations (OAC and Treasury), and the Committee on Foreign Investment in the United States (CFIUS). Our work in this area has been recognized in leading legal industries outlets, including Chambers USA whose researched revealed “Bass, Berry & Sims represents a range of clients in export controls and economic sanctions matters. The team is experienced in handling EAR, OFAC and ITAR issues.” A client added, “Bass, Berry & Sims is very responsive and service-oriented.” (from Chambers USA 2022 ). Learn more here.
Thaddeus R. McBride 202-827-2959 | tmcbride@bassberry.com
Thad McBride advises public and private companies on the legal considerations essential to successful business operations in a global marketplace. He focuses his practice on counseling clients on compliance with U.S. export regulations (ITAR and EAR), economic sanctions and embargoes, import controls (CBP), and the Foreign Corrupt Practices Act (FCPA). He also advises clients on anti-boycott controls, and assists companies with matters involving the Committee on Foreign Investment in the United States (CFIUS).
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