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Evasion of Export Controls Yields $8 Million in Fines for Hong Kong Entities

Tuesday, September 23, 2014
Sandler, Travis & Rosenberg Trade Report

The Bureau of Industry and Security has issued orders penalizing two Hong Kong companies and their owner for actions taken with the intent to evade certain export restrictions.

According to BIS, a Hong Kong man created a new company and provided it with the supplier and transaction information of a separate company he owned that was designated in General Order No. 3, which required a license to export or reexport any item subject to the Export Administration Regulations to that company. The man’s actions allowed the newly created company to engage in 29 transactions with the designated company’s suppliers on its behalf without the required license.

BIS has assessed civil penalties of $4.5 million against the designated company and $3.6 million against the new company but then suspended $4.1 million of the former and all of the latter for five years provided the companies commit no further export violations during that time. The man was assessed a $250,000 civil penalty. In addition, the designated company was ordered to hire an unaffiliated third-party consultant with expertise in U.S. export control laws to conduct an external audit of its compliance with U.S. export control laws (including recordkeeping requirements) with respect to all exports or reexports subject to the EAR. BIS also denied all export privileges for both companies and the man for five years but suspended these denials provided that the man pays the penalty, the designated company completes the audit and submits the results to BIS, and none of them commits any further export violations.

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