INDUSTRY NEWS

11/03/10 - End of Honeymoon for AES Violations

Exporters who enjoyed a two-year grace period after the Census Bureau issued final rules in 2008 mandating the use of the Automated Export System (AES) for the filing of export documentation are finding out the honeymoon is over. Since the first half of 2010, Customs and Border Protection (CBP) has stepped up the issuance of penalty notices for incorrect information on Electronic Export Information (EEI) filings. What started out as a few notices with low fines appears likely to become a costly problem for high-volume exporters, freight forwarders and carriers. Customs officials play down the penalties. "It's not as big as they [exporters] make it sound," one official explained. "All penalties have been mitigated to some degree," he added. First-time violations are drawing only a $250 fine, the official noted.  The fines go up after that with each successive violation. "Bascally, all of them fall under that pattern," he said. Late filings are subject to a $1,100 per day fine for each day the filing is late. In just five or ten days, "that can start adding up," he noted. "I have never seen anyone pay $10,000," the official said. "I don't have a clue what it would take to get a $10,000 fine," he added. In addition, he stressed that Customs is not putting a hold on cargo as it once did when it discovers an error on the EEI. In almost all cases, the official said, cargo has been allowed to move despite EEI violations. He also noted that a filer's past compliance record is a factor in determining whether mitigation will be given for an EEI violation. In gauging compliance, CBP is looking back at only the last three years of the filer's compliance history, he said. Some exporters have sought the help of Census to get the fine removed or mitigated. Census officials say they will try to help when possible but often find the CBP notice was warranted. With the exporting community now coming aware of the CBP enforcement policy, it should take steps to avoid violations, trade experts suggest. "It's the people handling logistics who need to know what to do," one attorney advised.  "Exporters have to wake up and address this in a different way," he warned. "They are going to have to figure out how to deal with it," he added. When new information comes in that might require amending an EEI, they need to have a system to retrieve the original filing and submit a correction quickly, he said. A quick correction of a filing may preclude the issuance of a penalty, but delays run the risk that CBP will find the mistake first. "Depending on the timing, just do a corrective filing," the trade attorney advised. The apparently growing number of penalty notices being sent out for AES violations has also raised questions about CBP's priorities and resources. With national security having become the main focus of Customs enforcement, the issuance of hundreds of notices for what some might consider non-security clerical errors should be questioned.  In addition, CBP resources could be stretched having to handle the notices and mitigation petitions. "It will be a burden on Customs to deal with mitigation petitions," one lawyer said.  At some point, the trade community, Customs and Census may need to come together to figure out a way to address such mistakes so they are neither a nuisance, a burden nor a costly liability.

Nexus Executives Sentenced for FCPA Violations Tied to Bribery of Vietnam Officials

In a case that featured dueling versions of prior case law and sentencing guidelines, three former employees and a partner of Nexus Technologies Inc., a Philadelphia-based sales and consulting company, were sentenced Sept. 15, 2010, for conspiring to bribe Vietnamese officials in exchange for lucrative contracts to supply equipment and technology to Hanoi in violation of the Foreign Corrupt Practices Act (FCPA). The president and owner of the company, Nam Nguyen, was sentenced to 16 months in prison and ordered to serve two years of supervised release following his prison term. His brother, An Nguyen, was sentenced to nine months in prison, followed by three years of supervised release. His other sibling, Kim Nguyen, was sentenced to two years of probation and ordered to pay a $20,000 fine. Joseph Lukas, a former partner with Nexus, also was sentenced to two years of probation and ordered to pay a $1,000 fine based on his cooperation in the prosecution of the case. Justice's sentencing memorandum to the court cited case history and asked for a 168-to-210 month in prison sentence for Nam Nguyen based on the severity and prevalence of the charges against him.  His criminal acts were tied to the behavior of Nexus, according to Justice. "For nearly a decade, defendant Nexus Technologies, Inc. ("Nexus") paid bribes to multiple Vietnamese government officials in exchange for contracts," the department said in its sentencing memo on the company. "Nexus did not slowly fall into bribery in order to compete - bribery was Nexus' business model. Nexus not only paid bribes on every contract it won, it offered a bribe on every contract on which it even submitted a bid," Justice said. In his defense, Nguyen cited other cases where the sentencing was quite low. However, Justice pointed out those defendants who received shorter sentences "cooperated with the investigation and received motions for downward departures… All but one of the individuals remaining, pled guilty at an early stage to informations, and did not put the government to the obligation of indictment," it noted

Two Ex-Los Alamos Contractors Charged with Attempting to Give Venezuela Nuclear Weapons Data

Two former contractors at New Mexico's Los Alamos National Laboratory (LANL) were indicted Sept. 17, 2010, on 22 counts of communicating classified nuclear weapons data to a person they believed to be a Venezuelan government official. The charges also included conspiring to participate in the development of an atomic weapon for Venezuela. Pedro Leonardo Mascheroni, a naturalized U.S. citizen from Argentina, and his wife, Marjorie Roxby Mascheroni, a U.S. citizen, face a potential sentence of life in prison, if convicted of all charges

Two Texas Businessmen Charged with Scheme to Defraud Ex-Im of $950,000

Two businessmen in El Paso, Texas, have been charged with eight counts of money laundering and conspiring to defraud the Export-Import Bank of the United States (Ex-Im) of more than $950,000.Leopoldo Parra, 48, of El Paso, Texas, is named as owner of Poma Tools and Industrial Supplies, a Texas-based equipment dealer. However, the phone number listed for the firm on a Internet business directory has been disconnected, and the company is not listed in the El Paso Yellow Pages.  Also charged is Eduardo Rodriguez-Davalos, 47, a Mexican citizen residing in El Paso. A federal grand jury indictment alleges that Parra, Rodriguez and others defrauded Ex-Im by "engaging in fraudulent and fictitious loan transactions purportedly involving U.S. and Mexican companies." The defendants allegedly gave Ex-Im false documents stating that U.S. goods had been purchased by, and shipped to, Rodriguez in Mexico.  "The loan was issued by a U.S. bank located in Baltimore and was guaranteed by Ex-Im Bank under Ex-Im Bank's medium-term Master Guarantee Agreement with the Lender," the Ex-Im Inspector General's office explained. "By providing the false documents to the Lender, the defendants defrauded both the Lender and Ex-Im Bank," it said.

BIS Warns Exporters that Commodity Classification Isn't Commodity Jurisdiction

In an Aug. 2, 2010, Federal Register notice, the Bureau of Industry and Security (BIS) reminded exporters that receiving a commodity classification from the agency for a product or technology does not satisfy the need to determine whether it is "subject to the EAR." In an interim final change to the Export Administration Regulations (EAR), BIS said commodity classifications are intended only to offer advice on what Export Control Classification Number (ECCN) on the Commerce Control List (CCL) an item or technology falls under. Requests for a Commodity Jurisdiction ruling to determine whether an item is subject to the EAR or International Traffic in Arms Regulations (ITAR) must be submitted to State's Directorate of Defense Trade Controls (DDTC), it stated. "Because BIS does not have the authority to issue commodity jurisdiction determinations, a BIS commodity classification only reflects whether each item identified in the commodity classification request is described in the CCL," BIS said in the notice. "Thus, prior to seeking a commodity classification, the applicant should have already determined -- through a self-determination or with the assistance of another U.S. Government agency -- that the item is not subject to the exclusive export control jurisdiction of another U.S. Government agency," it said

Barclays Pays $298 Million Penalty for Transactions with OFAC Sanctioned Countries

After making the Justice Department sweat for a few days, a D.C. U.S. District Court judge Aug. 18, 2010, approved a deferred prosecution agreement that Barclays Bank PLC, of London, entered with the Justice Department and the Manhattan District Attorney's office. In the settlement, Barclays agreed to forfeit $298 million to the U.S. ($149 million) and to the New York County District Attorney's office ($149 million) for violations of the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA). Separately, Treasury's Office of Foreign Assets Control (OFAC) also entered into a settlement agreement with Barclays for IEEPA violations that would have required Barclays to pay a $176 million civil fine. The agreement, however, the fine will be deemed settled by the payments to Justice and N.Y. DA's office. In addition, the Federal Reserve Board (FRB) and the New York State Banking Department Aug. 18 issued a consent order to cease and desist against Barclays. The order requires Barclays to improve its program for compliance with U.S. economic sanctions on a global basis. All the violations relate to transactions Barclays illegally conducted on behalf of customers from Cuba, Iran, Sudan and other countries sanctioned by the OFAC

Maersk Line Pays $3 Million OFAC Fine for Carrying Cargo to Iran and Sudan

U.S. subsidiary of the shipping conglomerate A.P. Moller-Maersk has paid more than $3 million to settle allegations of violations of the Sudanese Sanctions Regulations (SSR) and the Iranian Transactions Regulations (ITR), involving almost 5,000 shipments between January 2003 and October 2007. In a July 29, 2010, announcement, the Office of Foreign Assets Control (OFAC) said it had issued a Proposed Charging Letter, accusing Maersk Line, Limited (MLL), of Norfolk, Va., and its wholly owned U.S. subsidiaries, Farrell Lines Incorporated, and E-Ships, Inc., of violating the SSR and the ITR by providing unlicensed shipping services for 4,714 shipments of cargo originating in or bound for Sudan and Iran.These alleged services involved transportation on vessels owned, operated and/or chartered by MLL, but also time-chartered or sub-time-chartered by MLL's parent, A.P. Moller-Maersk, on at least one leg of the cargo's journey to or from Sudan and Iran.

ITAR Amended to Account for Electronic Commodity Jurisdiction Requests

State's Directorate of Defense Trade Controls (DDTC) amended the International Traffic in Arms Regulations (ITAR) in the Aug. 4, 2010, Federal Register to provide for the electronic submission of requests for Commodity Jurisdictions (CJ). On Sept. 1, 2010, it also posted new "Frequently Asked Questions" (FAQs) about electronic submissions on its website. Exporters must use the CJ procedure if doubt exists as to whether an article or service is covered by the U.S. Munitions List (USML). It may also be used for consideration of a redesignation of an article or service currently covered by the USML. Requests for jurisdiction rulings must be submitted to DDTC (see related story, Inside BIS). The agency amended ITAR Section 120.4(a), which deals with CJ, to require CJ requests to be filed electronically using a "Commodity Jurisdiction Determination Form'' (Form DS-4076).The notice also states: "As already noted in form DS-4076, information contained in the description block (Block 5) (exclusive of information legitimately identified as proprietary in Block 15) will be used in DDTC's published Commodity Jurisdiction determinations list, to be available on the DDTC Web site." Section 120.4 now says: "Requests shall identify the article or service, and include a history of this product's design, development, and use. Brochures, specifications, and any other documentation related to the article or service should be submitted as electronic attachments per the instructions for Form DS-4076."

Criminal Information Regarding Anti-Trust Violations and Fines for Kuehne + Nagel

Kuehne + Nagel International AG has entered into a plea agreement with the U.S. Department of Justice ("DOJ") to resolve allegations that it entered into illegal price fixing.  Among other things, the criminal information identifies the "AAMS fee" which it charged its  customers for prepaid shipments to the United States from Germany and Switzerland.  That fee was for complying with the Bureau of Customs and Border Protection ("CBP"),  mandate  that CBP be notified of the contents and certain other information pertaining to goods being shipped to the United States by air as many as four hours prior to the arrival of the shipment in the United States. The notification was required to be made via an electronic data interchange system approved by CBP, known as the Air Automated Manifest System ("AAMS").  Other illegal  fees included  an "NES fee"  charged to comply with requirements of the U.K as well as peak season surcharges imposed out of the Far East.  Under the plea  agreement, Kuehne + Nagel will plead guilty to violations of the U.S. Sherman Act   and will agree to pay a fine of approx. USD 9.865 million. The plea agreement closes DOJ's investigation of Kuehne + Nagel and its subsidiaries regarding international air freight forwarding services only. The plea agreement remains subject to court approval.

Things to look for in export transactions!

U.S. manufacturers, exporters, shippers, freight forwarders and custom brokers are in an excellent position to spot potential illegal export activity. They may well be the first parties contacted by WMD proliferators, terrorist support organizations, and illicit procurement networks/front companies trying to acquire U.S.-origin dual-use items, violating FCPA regulations, illegal commodities, etc..

You can avoid becoming involved in potential export violations by following the Know Your Customer, Red Flags, and other compliance guidance found in the Export Administration Regulations (EAR) and on the government’s website. www.bis.doc.gov › Compliance And Enforcement

BIS's Office of Export Enforcement (OEE) is very interested in working with you in instances in which you encounter suspicious inquiries or transactions which may violate the EAR. The information you can provide may well help OEE identify and build cases against export violators involved in proliferation, terrorism, and other illicit activities.

If you are asked to participate in a transaction that you believe may be a violation of the EAR, you are encouraged to contact one of our OEE offices immediately, or to use the form on the website to submit a confidential tip.