Exports penalties on the rise

Cost rises for companies that fail to comply with OFAC and BIS rules

By: Chris Gillis
Photo: AVN Photo Lab/Shutterstock
   The cost for breaking the country’s export compliance rules is getting more expensive.
   The Treasury Department’s Office of Foreign Assets Control (OFAC) published its “inflation adjustment of civil monetary penalties” rule Feb. 10, which raised administrative penalties from $284,582 per charge per violation to $289,238 per charge per violation. The amount similarly applies to the Commerce’s Bureau of Industry and Security’s penalties.
   This is the second inflationary adjustment in less than a year, with OFAC and BIS increasing their administrative penalty amounts June 7 from $250,000 to $284,582 per charge per violation.
   A penalty may be mitigated by more than a third if the exporter approaches an agency with a voluntary self-disclosure of wrongdoing, and demonstrate that it has an export compliance program already in place.
   The biggest increases in the penalty amounts trace their roots to the International Emergency Economic Powers (IEEPA) Enhancement Act, which President George W. Bush signed into law in October 2007. The act enhanced both criminal and administrative penalties that can be imposed under IEEPA. BIS and OFAC take their direction on penalty amounts from IEEPA.
   Under IEEPA, the monetary fines that a U.S. company faced were increased from $50,000 to $250,000 per charge per violation for administrative penalties of the Commerce Department’s regulations. Criminal violations could reach $1 million and 20 years in jail per violation.
   Congress used the IEEPA to send a strong message that non-compliance of U.S. export and re-export regulations by U.S. companies and persons will not be tolerated and to make a noticeable financial impact with wrongdoers. It also gave enforcement authorities the incentive to pursue investigations aggressively. In addition, when a company is charged, settlement of an enforcement case automatically results in a press release – in other words, negative publicity for the company.
   The USA Patriot Improvement and Reauthorization Act raised OFAC and BIS administrative penalties were increased to $50,000 per charge per violation in March 2006. Prior to that, administrative fines assessed by BIS were only $11,000 per charge per violation. BIS typically amplified the pain of non-compliance by assessing the violating party with three charges per violation: for the violation itself; the false statement on the Shipper’s Export Declaration, and later the Automated Export System entry; and “knowledge” if the government could prove a company knew something about the Export Administration Regulations (EAR), but showed ignorance toward applying the regulations in their operations.
   The mood among congressional lawmakers is unfriendly toward companies and individuals who may knowingly or unknowingly facilitate exports that violate the country’s export control regulations or harm national security. Penalty amounts are expected to increase in the years ahead. Companies should not forget proposed legislation that failed in 2006 to re-establish the Export Administration Act (EAA), which called for an administrative penalty amount of $500,000 per charge per violation.