The beginning of a new year is an appropriate time to reflect upon your company’s export compliance controls and ensure the procedures you have in place adequately protect your company. Export compliance programs generally seek to prevent the company’s own unauthorized exports, but often fail to account for the entities and people actively seeking to obtain and illegally export the company’s products, whether in the U.S. or abroad. This is one of many reasons a company’s export compliance controls need to be tailored specifically to its operations; the risk factors for each exporter vary depending on your product, its potential applications, your geographic export profile, and the specific countries and/or industries where your product is in demand, to list just a few examples.

Several recently publicized export violation cases illustrate the lengths to which some individuals and entities will go to acquire U.S. goods, the severe consequences of violating U.S. export regulations and sanctions programs, and that the risk can sometimes come from within our own borders:

• On October 18, Mohammad Reza Hajian was sentenced to four years in federal prison for conspiracy to violate the International Emergency Economic Powers Act (IEEPA), and the Iranian Transaction Regulations (ITR). Mr. Hajian’s sentence also included a one-year term of supervised release, and the forfeiture of $10 million in traceable proceeds from the offenses. Mr. Hajian’s violations, which involved three of his companies, centered on the illegal export of computers and related equipment to Iran. Specifically, Mr., Hajian and his companies exported computer and related equipment to Iran in violation of the U.S. embargo. Mr. Hajian and others involved in the transactions transshipped both the products and payments to Iran via the United Arab Emirates, and utilized fake identifies and fake end-users.

• On December 5, the Department of Justice announced it had arrested four individuals on charges concerning the unauthorized export of goods, including carbon fiber and helicopter component parts, to Iran and China. The individuals involved are accused of taking deliberate measures to conceal the true nature of the transactions.

• For example, in one of the transactions involving carbon fiber, the individual arranged for the procurement of carbon fiber from a U.S. supplier, its export to Europe, its subsequent re-export to the United Arab Emirates via a European-based freight forwarder, and finally to its ultimate destination of Iran. In another transaction involving carbon fiber, one of the individuals arranged for the export of carbon fiber from the U.S. to Belgium and then China by utilizing false statements on the shipper’s export declaration forms related to the ultimate consignee, ultimate country of destination, and licensing status. In a transaction involving the helicopter component parts, one of the individuals arranged for the export of those parts to Iran via South Korea. The parts at issue had military uses, such as reconnaissance, tactical insertion and as missile platforms.

The four men charged included an Iranian citizen, a Turkish citizen, a dual U.S. and Iranian citizen, and a U.S. citizen, yet another case illustrating that the threat of export violations often comes from within our own borders.

• In another example, in October, ARC Electronics was indicted in connection with the illegal export of high-tech microelectronics from the U.S. to Russia. ARC’s owner, Alexander Fishenko, is a naturalized U.S. citizen.

• On December 3, the China Nuclear Industry, Huaxing Construction Company, Ltd. pleaded guilty to conspiring to violate the IEEPA and the EAR in connection with the illegal export of high-performance epoxy coatings from the U.S. to the Chashma II Nuclear Power Plant in Pakistan. Huaxing’s guilty plea is related to several other cases spanning several years and involves a large-scale investigation.

• In 2010, PPG Paints Trading Co. Ltd., located in Shanghai, pleaded guilty to similar conspiracy charges. PPG Paints Shanghai is a subsidiary of the U.S. Company PPG Industries. Together, PPG Industries and PPG Shanghai paid $3.75 million in criminal fines. Recently, PPG Paints Shanghai’s highest executive also pleaded guilty to conspiracy. Huaxing, which is a People’s Republic of China owned, operated, and controlled company, was the entity that purchased the epoxy coatings for use in the Pakistani reactor. Huaxing agreed to pay a $2 million criminal fine, complete a five-year period of corporate probation, implement an export compliance program, and be subject to multiple third-party audits over the next five years.

The U.S. government also actively searches for persons intending to violate the laws:

• On December 11, Yen Ling Chen, a Taiwanese citizen, pleaded guilty to violating the IEEPA for attempting to export weapons-grade carbon fiber to Taiwan. Chen was arrested in the U.S. after contacting an undercover government agent to negotiate the purchase of carbon fiber, wiring a deposit for a sample, and then traveling to the U.S. from Taiwan to obtain the sample.

• On December 19, an Iranian corporation was charged in the U.S. with allegedly exporting more than $30 million in computer-related goods to Iran in violation of the U.S. embargo. Business Machinery Worldwide (BMWW), located in Iran, and three subsidiaries based in the United Arab Emirates, as well as numerous officers and directors, are accused of conspiring to violate the IEEPA. Authorities allege that BMWW solicited computer goods from the U.S. and shipped them to Iran via the United Arab Emirates in violation of U.S. law. BMWW allegedly communicated to its employees and affiliate companies that the U.S suppliers should “never find out that the manager of [a subsidiary] is an Iranian.”

• On December 21, two nationals of Singapore were extradited to the U.S. to stand trial for an alleged fraud conspiracy related to the illegal export of military antennae from the U.S. to Singapore and Hong Kong. Each individual faces one charge of conspiracy to defraud the United States by violating the Arms Export Control Act (AECA). The two individuals allegedly caused 55 military antennas to be exported from the U.S. to Singapore and Hong Kong without the required license from the Department of State. The defendants allegedly undervalued the products to avoid filing SEDs (spell out of first reference), used false names, and used false front companies to facilitate the exports.

In each of the cases above, the individuals and entities involved took steps to conceal the true nature of their transactions, the parties involved, and the ultimate end-use and end-users in the transactions. Some cases appear to have only involved a few individuals, while others involved multiple entities located in several countries. These cases serve as a reminder of the severe consequences for violations of the law, and the importance of conducting proper due diligence in transactions involving products controlled for export from the U.S.

Written by Ashley McCauley, Attorney