By George W. Thompson
While they’re not quite as common as parking tickets, there have been a number of recent public penalty announcements by the Bureau of Industry and Security. The latest involves a transshipment scheme to sell merchandise to Iran. The exporter, Worthington Products, allegedly conspired to sell an EAR99 item (a waterway barrier debris system) to an Indian company. In turn, the Indian company would resell the item to the Iranian purchaser, which just so happened to be an Iranian government entity on the Specialty Designated Nationals List.
You’ve gotta ask yourself one question: “Do I feel lucky?”
It’s unclear whether there were to be two more-or-less bona-fide sales, or the Indian company instead would simply issue fake documents in its role as Worthington’s agent (these geniuses don’t seem to have thought that point through.) An agreement among the U.S., Iranian and Indian parties was reached to ship the product to the United Arab Emirates and thence to Iran following prepayment of half the purchase price.
In preparation for the big day, Worthington concocted a Shippers Letter of Instruction stating the ultimate destination was the UAE. A correspondingly false Electronic Export Information was filed, stating the export authorization as “NLR” (“No License Required”). Everything looked set. And then . . .
Well, do ya, punk?
Customs and Border Protection grabbed the merchandise before it left the U.S. port, under instructions from BIS. How BIS found out is not explained. Caught red-handed, and subject to investigation, Worthington and its president agreed to a settlement requiring them to pay a penalty of $250,000 and undergo export control training. They also were placed on the Denied Persons List for a five-year term, with the sentence suspended as long as they meet the terms of the settlement agreement and commit no further violations of the Export Administration Regulations.
There are a few interesting points about this otherwise mundane case.
First, the infraction penalized by BIS was violation of the Office of Foreign Assets Control’s Iranian Transactions Regulations, 31 C.F.R. Part 560. OFAC requires a license for virtually all exports from the U.S. to Iran, and of course Worthington failed to obtain one. It’s a little-known fact that violations of OFAC’s Iranian regulations also constitutes a violation of the Export Administration Regulations. In effect, BIS was enforcing the OFAC rules against Worthington. For whatever reason, there has not been an OFAC penalty announcement.
Second, the case was brought against both the company and its president. Given the egregious circumstances, BIS apparently believed that asserting individual liability was appropriate. While this certainly isn’t the first time that BIS has gone after individuals, it does serve as a reminder that potential liability for EAR violations is not limited to corporations and other business entities.
Third, the foreign parties appear to have been witting participants in the scheme. We do not know whether BIS has brought enforcement actions against them, but, in general, persons outside the U.S. run a risk if they violate the EAR. Also, I somehow doubt that the Iranian purchaser will get its down payment refunded, even though the goods were not delivered.
