By George W. Thompson
Here’s an idea. Set up a scheme in a foreign country – say, the Netherlands – to send aircraft parts to the United States for servicing and repair, and purchase U.S.-origin aircraft parts as well. Forget to mention those parts are for Iranian aircraft, and take active steps to mislead the U.S. vendors about the end-users. Sound clever? I suppose it is, until the U.S. government finds out.
The Bureau of Industry and Security has finally published the terms of its proposed charging letter and settlement with Fokker Services B.V., the Dutch company that set up the brilliant plan to evade U.S. sanctions and export controls on Iran. Fokker settled with the Office of Foreign Assets Control, and agreed to a deferred prosecution agreement, in 2014. The other shoe, in the form of a settlement with BIS, dropped earlier this month.
OFAC, of course, maintains an embargo on trade with Iran. OFAC prohibits “U.S. persons” from participating in any transactions if they know that Iran is the destination. It also prohibits “non-U.S. persons” from reexporting or transferring to that country U.S.-origin articles that would require an export license from BIS.
Certain aircraft parts are listed on the Commerce Control List, and therefore are covered by the OFAC prohibition as well as BIS’s own controls. Consequently, export licenses are required to shipped CCL-covered aircraft parts to Iran (an OFAC license generally will suffice for both agencies). During the time Fokker was engaged in this trade, the chances of getting such a license were slim to none.
What Could Possibly Go Wrong?
Not wanting to be inconvenienced by these requirements, Fokker instead decided upon the creative approach of hiding any references to Iran. It made sure to send parts for repair only to companies that did not ask for end-user information; those that did were excluded from the business. Fokker falsified the aircraft tail numbers provided to its vendors, to make it appear the aircraft was registered elsewhere than Iran.
These activities were company policy, not the shenanigans of a few rogue employees. Interestingly, Fokker’s internal legal counsel warned company executives that U.S. law prohibited such actions. Nevertheless, Fokker undertook well over a thousand prohibited transactions.
After being found out, Fokker was issued a $10.5 million civil monetary penalty by OFAC. It forfeited another $10.5 million under the terms of a deferred prosecution agreement with the Justice Department. Both sanctions were announced in June 2014.
BIS Drops the Hammer
In its proposed charging letter, BIS identified the various types of violations committed by Fokker: acting with knowledge that items controlled for national security, missile technology and antiterrorism reasons were to be exported or reexported to Iran, that an end-user was the Iranian military establishment and that shipments to Iran Aur violated the terms of a denial order against that company. BIS also included Fokker’s similar scheme involving reexports to Sudan, another country under a U.S. embargo.
The BIS penalty of $10.5 million was jointly levied with OFAC, and is not in addition to those already announced in 2014. The proposed charging letter and supporting documents make no mention of a voluntary disclosure by Fokker; while self-reporting this activity may have helped reduce the monetary penalty, the odds that it would have resulted in avoiding liability altogether are, in my view, quite low. Thus, my guess is that BIS and OFAC learned of the scheme through other means.
Are There Any Lessons Here?
There may be a few “teachable moments” to be found in the Fokker case. The most obvious is that foreign companies are subject to U.S. sanctions and export controls, and can face ruinous consequences if they disregard those rules. The proposed charging letter makes it clear that Fokker knew exactly what it was doing, so the excuse of unfamiliarity with BIS and OFAC requirements that many foreign companies can plausibly raise doesn’t apply in this case.
As the old saying goes, evaders gonna evade, so the next lesson is: don’t be one of them, especially if your attorney tells you that your actions are illegal. Of course, I have a vested interest in making that point, but Fokker’s intentional failure to heed legal advice was a factor cited by BIS.
I believe there’s a more subtle lesson here for U.S. companies. Parts vendors and repair shops in the United States were duped by Fokker into supplying goods destined for Iran. From the OFAC and BIS narratives, none of them were intentional participants, and there’s no indication that any of them were penalized.
Nevertheless, BIS made the point that U.S. companies requiring that Fokker identify the end-user were “blacklisted” and excluded from the scheme. While end-user reporting is not practical for every industry, aerospace lends itself to such a requirement. A product sent for repair typically is to be returned for re-installation in a particular aircraft, so an aircraft servicing outfit like Fokker will necessarily know the identity and location of its customer. Parts purchases may be for inventory or intended for a particular aircraft.
Whether or not to require identification of the end-user is up to each exporter, and will depend on the nature of the product, industry, marketing channels and other circumstances. In the Fokker case, companies with that requirement were spared involvement in their customer’s illegal activities. Even if there’s no obligation to get that information, it may be a wise precaution in an export control compliance program.
The Fokker penalty information is found here.
