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Do You Know What Your Foreign
Subsidiaries Are Doing?

December 13, 2007

On December 7th, The Bureau of Industry and Security (BIS) announced that Mine Safety Appliances Company (MSA) of Pittsburgh, has agreed to pay a $470,000 civil penalty (See Order Relating To Mine Safety Appliances or http://efoia.bis.doc.gov/exportcontrolviolations/e2025.pdf) for alleged violations of the Export Administration Regulations (EAR) and the Iranian Transaction Regulations. The settlement arose from allegations that MSA, through its office in Abu Dhabi (MSA Middle East), violated the EAR and OFAC regulations on 107 occasions. The allegations relate to the re-export of safety and protection-related items from the UAE to Iran and Syria without the required authorizations.

Under the EAR, goods of U.S. origin remain subject to the jurisdiction of the United States, unless they are incorporated into a foreign-made product and the value of the U.S. contribution to that end product is deemed to be de minimis. If the exporter “knows” that the article in question will be re-exported to a new destination, that new destination must be treated as the ultimate destination for purposes of determining the export license requirements. Even if a foreign purchaser will subsequently make a re-export, the foreign purchaser must abide by any U.S. restrictions that are applicable to that product based on its level of control and any restrictions on the end-country or end-user. According to Darryl Jackson, Assistant Secretary of Commerce for Export Enforcement:


Preventing the diversion of U.S.- origin goods so that they do not support the economies of countries that sponsor terrorism, such as Syria and Iran, is extremely important...This case demonstrates that companies must take extra care when implementing compliance programs with foreign subsidiaries.


In its charging letter, BIS alleged that between May 2001 and December 2005, MSA’s Middle East subsidiary made 107 re-exports of EAR99 and controlled items, including helmets, gas masks, detection equipment, filters, and other related safety equipment to Iran and Syria from the UAE without the required U.S. government re-export authorization.

Under the International Emergency Economic Powers Act ("IEEPA") in effect at the time, a violator could be fined up to $11,000 per violation (this has since been increased to $250,000 by the IEEPA Enhancement Act (“Act”; Pub. L. No. 110-096)). In this case, however, MSA voluntarily disclosed these violations to BIS and cooperated fully in the investigation, which was treated as a mitigation factor in determining the amount of the fine. (MSA received about a 40% reduction from the statutory maximum fine that could be assessed.) BIS said that it also provided mitigation credit to MSA for its current compliance efforts.

Parties who may have been involved in violations of the EAR are encouraged to submit a Voluntary Self Disclosure (VSD) to BIS’s Office of Export Enforcement, as provided in Part 764.5 of the EAR. According to BIS, a VSD is considered a “great weight” mitigating factor in the settlement of BIS administrative cases that involve shipments of unauthorized goods or technology to countries or end-users.

The Law Offices of George R. Tuttle provides training, consulting and advice to U.S. and foreign companies seeking to implement compliance programs or obtain export authorizations, as well as representing companies before BIS and other agencies in connection with detentions, seizures, compliance investigations, and the preparation and submission of Voluntary Disclosures.

For more information, visit our export compliance web page, or contact George Tuttle, III at (415) 986-8780 or geo@tuttlelaw.com.

 

The information in this article is general in nature, and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.

Copyright 2007 by Tuttle Law Offices.

All rights reserved. Information has been obtained from sources believed to be reliable. However, because of the possibility of human or mechanical error by our offices or by others, we do not guarantee the accuracy, adequacy, or completeness of any information and are not responsible for any errors, omissions, or for the results obtained from the use of such information.

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