"Compliance InSight" is published quarterly for individuals & companies who
must adhere to OFAC & BIS sanctions.With the ever-evolving world of regulatory
compliance, this newsletter is written to provide brief updates on what you need
to know. Not sure if OFAC or BIS applies to your business? Then this newsletter
is definitely for you.
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Failing
to Check the BIS Entity List Can be Costly
By Doug Jacobson, PLLC
 The
recent payment in November of 2011 of a $200,000 civil penalty to settle an enforcement
action brought by the U.S. Department of Commerce's Bureau of Industry and Security
(BIS) serves as an important reminder to parties involved in export transactions
of the need to check all restricted party lists maintained by the U.S. Government
in connection with export transactions, including the Entity List.
On July 28,
2011, the Deputy Assistant Secretary for Export Enforcement signed an order approving
a settlement agreement whereby freight forwarder, Toll Global Forwarding (USA) Inc.,
agreed to pay $200,000 to settle allegations that a company that it had previously
acquired, Baltrans Logistics, Inc., had arranged for the export of a number of shipments
to organizations in India that were included on BIS's Entity List.
BIS maintains three restricted party lists: the Denied Persons
List, the Entity List and the Unverified List. The Entity List includes the names
of businesses, research institutions, government organizations and individuals that
have been identified as being involved in activities that merit additional scrutiny
and licensing requirements. The entries on the Entity List specify the license requirements
and license review policy that are applicable to shipments to each listed entity.
In some cases, a license will be required to ship items classified as EAR99 to the
customer, even when a license would not normally be required. In other cases, all
items subject to the Export Administration Regulations will require a license. The
export license review policy also varies from entity to entity. In some cases, there
is a presumption of approval or denial and, in other cases, the license will be
reviewed by BIS on a case-by-case basis.
In this case, the freight forwarder arranged for the export of electronic components
and platinum pellets, both classified as EAR99, from the U.S. to Bharat Dynamics
Limited and the Solid State Physics Laboratories in India. While the export of EAR99
items to India would not normally require an export license, Bharat Dynamics Limited
and the Solid State Physics Laboratories were included on the Entity List at the
time the shipments occurred. The BIS licensing policy for these entities was a “presumption
of approval for EAR99 items” and thus an export license may have been issued
if a license application had been submitted.
Because the
freight forwarder either did not check to determine whether these two organizations
were included on the Entity List prior to the shipment, or were not aware of the
export license requirements, the freight forwarder was charged by BIS with nine
violations of 15 CFR § 764.2(b), causing, aiding and abetting an act prohibited
by the Export Administration Regulations (EAR).
In addition to agreeing to settle this case for $200,000, the settlement agreement
requires the freight forwarder to undergo an external export compliance audit and
submit the results of the audit to BIS next year. The settlement agreement also
requires that any potential violations of the EAR must be submitted to BIS for review
and that the failure to pay the penalty or submit the audit results as required
could lead to a denial of the freight forwarder’s export privileges.
While Bharat Dynamics Limited and the Solid State Physics Laboratories were removed from the Entity List on Jan. 25, 2011, BIS adds
new parties to the Entity List and the other lists that it maintains on a regular
basis. The charging letter, settlement agreement and other documents related to
this case can be found here.
*Douglas N. Jacobson is a Washington, D.C.-based attorney who specializes in export
controls, sanctions and other international trade legal issues. He can be reached
at (202) 431-2407 or info@djacobsonlaw.com.
Next
Issue's Feature: OFAC COMPLIANCE
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Question
:
 Are
we only required to review individuals who we pay or receive payment from "directly,"
i.e., we pay an insurance brokerage who has several individual "agents" in that
office. We don't pay the agents directly, but we pay the main brokerage company.
We aren't responsible for the individual "agents" in the company, correct?
Answer
:
Although you
may not be liable for payments made by the brokerage firm that violate OFAC sanctions,
you can help reduce your exposure or risk by obtaining a contract in which the brokerage
firm agrees that they will not engage in any business or practice that is in violation
of U.S. law. This would include OFAC sanctions and any other laws that might be
applicable.
Got
a question on OFAC or BIS? We want to hear from you. Submit your question and an
expert will answer it in a future issue.
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