Review the Adequacy of Your Company's Export Compliance Program
Given developments in 2007, now is a good time for a company to review the adequacy of its export compliance program. In 2007, there were two notable changes to the export laws and export enforcement efforts of the United States. First, in October 2007, President Bush signed into law the International Emergency Economic Powers Enhancement Act, Public Law No. 110-96 ("Act"), amending IEEPA Section 206 by significantly increasing both civil and criminal penalties for violations of U.S. export control laws and trade sanctions. Second, the U.S. Government, specifically the U.S. Department of Justice ("DOJ"), increased prosecutions for violation of U.S. export laws.
Increased Export Penalties
Under the Act, civil penalties for export violations increased from $50,000 to the greater of $250,000 or twice the amount of the transaction. Criminal penalties were increased from $50,000 and up to 10 years in prison to up to $1 million per violation and up to 20 years in prison. These increases apply to the export controls contained in the Export Administration Regulations administered by the U.S. Department of Commerce's Bureau of Industry and Security ("BIS"), as well as the trade and economic sanctions programs administered by the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC").
While the increase in criminal penalties applies only to enforcement actions commenced after October 16, 2007, the increased civil penalties apply to violations where an enforcement action is either pending or commenced on or after October 16, 2007. The application of the increased penalties to pending enforcement actions raises questions about retroactivity and how BIS and OFAC will use their discretion in imposing the new penalties for violations that took place before the Act's effective date. Both OFAC and BIS have provided guidance regarding the ways that they will apply the new penalties in such circumstances. See the OFAC's Interim Policy and the BIS's Fact Sheet.
Although these current increases are significant, they may not stop there. In August 2007, Sen. Christopher Dodd introduced a bill (S. 2000) intended to amend and extend the Export Administration Act of 1979. If passed, S. 2000 would catapult the penalties for export violations to even greater heights—increasing the maximum civil penalties to $500,000 and the criminal penalties to the greater of $5 million or 10 times the value of the exports involved.
Increased Export Enforcement
In 2007, there was also a marked increase in the number of criminal investigations into and prosecutions of companies accused of violating laws restricting the transfer of sensitive technology and defense products to countries such as China. Export violation prosecutions in 2007 increased by more than 60 percent compared with 2006.
In addition, in November 2007, DOJ announced a new national export enforcement initiative and named Steven Pelak to serve as DOJ's National Export Control Coordinator. DOJ also has increased the training of Assistant U.S. Attorneys regarding export enforcement and has raised its level of cooperation with the State Department's Directorate of Defense Trade Controls and BIS.
Finally, in March 2007, ITT Corp. agreed to pay a record $100 million penalty for illegally exporting restricted night vision data to China, Singapore and the United Kingdom. ITT entered into a deferred prosecution agreement that allows the company to invest half of the fine toward the development of a night vision system for the U.S. military.
Given the government's emphasis on export enforcement and the increased penalties applicable to export violations, companies would be wise to review the adequacy of their export compliance programs in 2008. In fact, the existence of an effective export compliance program is considered by both OFAC and BIS to be an important mitigating factor in assessing the appropriate penalty if a violation should occur. More significantly, the lack of such a program is a potential aggravating factor under the OFAC and BIS penalty guidelines.