(March 22, 2020) – In an unusual decision, the Undersecretary for the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) remanded a civil penalty of $31,425,760 assessed by an Administrative Law Judge (“ALJ”) against Nordic Maritime Pte. Ltd., (“Nordic Maritime”) a Singapore-based marine seismic company and its chairman for violations of the Export Administration Regulations (“EAR”). While agreeing with the seriousness of the charges, the Undersecretary found that the statutory maximum penalty—double the value of the contract underlying the violations—was disproportionate in comparison to other BIS cases. The Undersecretary’s decision is available here.
The decision offers a rare public view into the BIS enforcement process involving ALJs, which differs from other agencies such as the Office of Foreign Assets Control (“OFAC”), while demonstrating that the U.S. government continues to accept limits on reasonable penalties for violations of sanctions and export control regulations, notwithstanding the administration’s otherwise intense policy focus on Iran and other sanctioned territories.
BIS Charges and Underlying Facts
Nordic Maritime admitted to BIS’s allegations that the company had transported and used U.S.-origin maritime surveying equipment in Iranian territorial waters. Under the EAR, the equipment required a BIS license for export to Iran. According to the decision, Nordic Maritime had contracted with Mapna International FZE (“Mapna”), a UAE company, to perform seismic survey work, despite having been warned that using the equipment in Iranian waters would violate the EAR and was in direct breach of the terms of a BIS Re-Export License (the “License”) issued to the owners of the equipment, Reflect Geophysical.
Although Nordic Maritime feigned ignorance that it knew the survey work was on behalf of Iran when it entered into the contract, the company later admitted that Mapna had significant ties to Iran and that the work was in furtherance of Mapna’s contract with the National Iranian Oil Company.
While disputing the amount of the penalty, the Undersecretary upheld the charges that:
– BIS Nordic Maritime “transported and used items exported from the United States and subject to the Regulations with knowledge that a violation of the Regulations had occurred or was about or intended to occur in connection with the items,” 15 CFR 764.2 (e);
– Nordic Maritime “reexported to Iran items subject to the Regulations without the required license,” 15 CFR 764.2(a);
– Nordic Maritime made false statements that it had never been warned about the License, although the chairman had received a letter informing him of the License, had obtained a copy of it, and later, received a cease and desist letter from Reflect Geophysical, 15 CFR 764.2(g);
– The chairman caused, aided, and abetted the unlawful reexport of the US-origin equipment by Nordic Maritime to Iran, after he “received actual notice providing him with personal knowledge that the company was about to engage, and then was engaging on an ongoing and continuing basis, in conduct in violation of the [EAR],”15 CFR 764.2(b).
The Undersecretary’s Decision
The Undersecretary confirmed the ALJ’s opinion that evidence of the violations was “conclusive” and held that the ALJ correctly applied mitigating and aggravating factors. Furthermore, in the Undersecretary’s view, the monetary penalty, imposed jointly and severally on the company and its chairman, was permissible under the law. The fact that the company litigated rather than settled the case and the seriousness of the misconduct justified a punishment that “dissuades future violations of this sort, and acts as a strong deterrent against this type of behavior,” the Undersecretary stated in the decision.
However, after reviewing similar BIS enforcement cases, including some involving false statements made during an investigation, the Undersecretary found that “there appears to be little precedent for a civil monetary penalty like the one given here.” Accordingly, he remanded the penalty for further consideration with regard to the issue of proportionality. He also amended the denial order against the company and the chairman from the ALJ’s indefinite term of “until such time as the penalty was paid” to a defined period of 15 years.
Risk Mitigation
Notwithstanding the Undersecretary’s decision, the ALJ could decide to impose a sizeable penalty upon further consideration. Notably, the Undersecretary upheld the ALJ’s findings with respect to the violations themselves.
Companies active in the Middle East offshore and maritime oil and gas industry are advised to exercise caution when entering into contracts and providing services to companies located in free zones. U.S. authorities, including OFAC and BIS, expect companies to conduct adequate due diligence to understand on whose behalf their counterparties may be acting and whether they are acting on behalf of third parties subject to U.S. sanctions and export controls, such as companies in Iran.
Moreover, U.S. enforcement agencies expect that companies remain “situationally aware” when providing offshore services to avoid unlicensed activities in Iranian territorial waters or Iranian projects.
Lastly, all companies, including non-U.S. companies are reminded of the EAR’s application to the leasing of U.S.-origin goods or technology. Regardless of how they are obtained, items subject to the EAR may not be re-exported or transferred to prohibited destinations or end users, or for prohibited end uses
Source » steptoeinternationalcomplianceblog