Looking back at 2017, there were the usual litany of people and companies convicted of violating export control laws.
They included a Florida firm for shipping rifle scopes and night vision lenses to various countries using the ECCN EAR99;[i] and a man from Texas for conspiring to illegally export radiation hardened integrated circuits to China and Russia by repackaging the controlled item and falsely declaring them as touch screen parts.[ii] Then there was the Singaporean who duped his U.S. suppliers into believing that the thousands of radio frequency modules he was buying were destined for end users in Singapore, when in fact they were exported to Iran, some of which were later found in unexploded improvised explosive devices in Iraq.[iii]
But the past year will also be remembered for something quite extraordinary in the compliance world—the largest civil penalty ever meted out in a Bureau of Industry and Security (BIS) Export Control case.
The 411 on ZTE
It involved China’s Zhiongxing Telecommunications Equipment Corp and ZTE Kangxun Telecommunications, together known as ZTE, which agreed to a penalty of US$1.19 billion for illegally shipping telecom equipment to Iran and North Korea in violation of the Export Administration Regulations (EAR), the Iranian Transactions and Sanctions Regulations (ITSR), and the International Emergency Economic Powers Act (IEEPA).[iv]
ZTE, it should be noted, is a China-headquartered multinational telecommunications equipment and systems company, with some 70,000 employees working in offices worldwide, including the United States and Europe.
ZTE’s breaches occurred between 2010 and 2016, with the conspirators forming a 13-member team who allegedly attempted to cover their tracks by destroying or concealing materials related to their illicit transactions on an ongoing basis, at times nightly.
Despite the best efforts of the gang of 13, U.S. authorities comprising the Bureau of Industry and Security, the U.S. Attorney’s Office for the Northern District of Texas, the Department of Justice Counterintelligence and Export Control Section, FBI, and the Department of Homeland Security were able to uncover what they described as “damning” evidence, even bringing to light the fact that the perpetrators had to sign a non-disclosure agreement (and who said honor among thieves was dead!).
The message is simple: circumventing the law under any circumstance is not a good idea.
For all the cases mentioned, the authorities stressed their commitment to continually root out export violators. The BIS release on the ZTE case summed up the sentiment best with the terse statement: “We are putting the world on notice. The games are over … Those who flout our economic sanctions and export control laws will not go unpunished.”[v]
[i] Florida Firm Fined $27 Million for Export Violations. News release. Bureau of Industry and Security. https://www.bis.doc.gov/index.php/about-bis/newsroom/1250-florida-firm-fined-27-million-for-export-violations. Accessed January 8, 2018.
[ii] Texas Man Pleads Guilty to Conspiring to Illegally Export Radiation Hardened Integrated Circuits to Russia and China. Press Release. U.S. Department of Justice. https://www.justice.gov/opa/pr/texas-man-pleads-guilty-conspiring-illegally-export-radiation-hardened-integrated-circuits. Accessed January 8, 2018.
[iii] Singapore Man Pleads Guilty to Plot Involving Illegal Exports of Radio Frequency Modules From the U.S. To Iran. Press release. U.S. Department of Justince. https://www.justice.gov/opa/pr/singapore-man-pleads-guilty-plot-involving-illegal-exports-radio-frequency-modules-us-iran. Accessed January 9, 2018.
[iv] ZTE Corporation Agrees to Plead Guilty and Pay Over $430.4 Million for Violating U.S. Sanctions by Sending U.S.-Origin Items to Iran. Press release. The United States Department of Justice. https://www.justice.gov/opa/pr/zte-corporation-agrees-plead-guilty-and-pay-over-4304-million-violating-us-sanctions-sending. Accessed January 8, 2018.
[v] Secretary of Commerce Wilbur L. Ross, Jr. Announces $1.19 Billion Penalty for Chinese Company’s Export Violations to Iran and North Korea. Press Release. U.S. Department of Commerce. https://www.commerce.gov/news/press-releases/2017/03/secretary-commerce-wilbur-l-ross-jr-announces-119-billion-penalty. Accessed January 8, 2018.