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Largest Ever Civil Penalty for Export Control Violations Assessed on Chinese Company

Wednesday, March 08, 2017
Sandler, Travis & Rosenberg Trade Report

The Department of Commerce announced March 7 that a Chinese company has agreed to a record-high combined civil and criminal penalty of $1.19 billion for an “egregious scheme” to illegally ship telecommunications equipment to Iran and North Korea. Commerce Secretary Wilbur Ross said this penalty, the largest ever imposed by the U.S. government in an export control case, highlights that the Trump administration “will be aggressively enforcing strong trade policies” and that “those who flout our economic sanctions and export control laws … will suffer the harshest of consequences.”

The penalty amount includes a $661 million penalty to be paid to the Bureau of Industry and Security (with $300 million suspended during a seven-year probationary period), $430.5 million in combined criminal fines and forfeiture under a plea agreement with the Department of Justice, and $100.8 million as part of a settlement agreement with the Office of Foreign Assets Control. The company has also agreed to active audit and compliance requirements designed to prevent and detect future violations as well as a seven-year suspended denial of export privileges that DOC states “could be quickly activated if any aspect of this deal is not met.”

From January 2010 through April 2016 the company conspired to evade the U.S. embargo against Iran to obtain contracts with and related sales from Iranian entities to supply, build, operate, and/or service large-scale telecom networks in Iran, the backbone of which would be U.S.-origin equipment and software. Shipped items included routers, microprocessors, and servers controlled under the Export Administration Regulations for national security, encryption, regional security, and/or anti-terrorism reasons. 

According to information from DOC and OFAC, members of the company’s highest-level management were specifically aware of and considered the legal risks of engaging in the illegal activities prior to signing contracts with Iranian customers and supplying U.S.-origin goods to Iran. After telling the U.S. government the company had ceased its Iran-related activities following the initiation of a government investigation, those leaders decided to surreptitiously resume those activities, which continued until BIS added the company to the Entity List in 2016. Under the direction of those leaders the company engaged in an elaborate scheme to delete evidence of the illegal activities and make knowingly false and misleading representations and statements to U.S. law enforcement agencies.

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