(Source: Thomsen & Burke, 31 Aug 2020) [Part I was published in yesterday’s Bugle]
BIS Fines Singapore Company and its Chairman over $31 Million for Using U.S. Export Controlled Equipment to Conduct Seismic Survey in Iranian Waters
On August 19, 2020, BIS Acting Under Secretary Cordell Hull issued a final order imposing a $31,425,760.00 penalty on Singapore based Nordic Maritime Pte. Ltd. (“Nordic”) and its Chairman, Morten Innhaug (“Innhaug”). The order imposing a civil penalty followed an earlier decision to impose a 15 year denial order against Nordic and Innhaug. . . .
In July 2011, Reflect Geophysical (Reflect) obtained a license from BIS to re-export subsea survey equipment controlled on national security and anti-terrorism grounds. The equipment was loaded onto the M/V Orient Explorer, a vessel owned by DMNG, a Russian state-owned company. In March 2012, Reflect lost control of the equipment aboard the vessel in Singapore due to DMNG exercising a lien over the controlled surveying equipment as a result of a contractual dispute. Nordic subsequently gained control of the equipment by chartering the M/V Orient Explorer from DMNG.
In April 2012, Reflect sent a cease and desist letter to DMNG, Nordic, and Innhaug cautioning the parties that the use of Reflect’s equipment in Iranian waters would violate the terms of the BIS issued re-export license. Despite the warning by Reflect, Nordic used the controlled equipment to perform a 3D offshore seismic survey in the Forouz B natural gas field in Iranian territorial waters. The survey was conducted pursuant to a contract that Nordic had with Mapna International FZE, a subsidiary of Mapna Group, also known as the Iran Power Plant Management Company. Nordic did not obtain authorization from either BIS or the Department of Treasury’s Office of Foreign Assets Control.
During the investigation, Nordic provided BIS a written submission falsely stating that Reflect never advised Nordic that the survey equipment was subject to a BIS re-export license, never communicated any BIS export license conditions controlling the survey equipment and never provided a copy of the BIS license to Nordic.
Company President And Employee Arrested In Alleged Scheme To Violate The Export Control Reform Act
The U.S. Government announced the arrests this month of Chong Sik Yu, a/k/a “Chris YU,” and Yunseo LEE. YU and LEE are charged with conspiring to unlawfully export dual-use electronics components, in violation of the Export Control Reform Act, and to commit wire fraud, bank fraud, and money laundering. Chong Sik Yu and Yunseo Lee are accused of violating U.S. export laws by sending electronics components with military applications to Hong Kong and China. Together with the Commerce Department and all of our law enforcement partners, we will continue to protect our national security by preventing dual-use technologies from being sent abroad without the required licenses.
Since at least 2019, a U.S. company named America Techma Inc. (“ATI”) has illegally exported electronic components from the United States to Hong Kong for apparent re-export to other countries, including China, in violation of the Export Control Reform Act of 2018 (“ECRA”). Pursuant to the ECRA controls, the Department of Commerce administers export-licensing and other requirements for the export of goods, software, and technologies from the United States to foreign countries. These requirements restrict the export of items that could make a significant contribution to the military potential of other nations or that could be detrimental to the foreign policy or national security of the United States. The Commerce Department identifies the most sensitive items subject to Export Administration Regulations (“EAR”) on the Commerce Control List (“CCL”), which is categorized by Export Control Classification Number (“ECCN”).
YU is ATI’s president, and LEE is an ATI sales representative. YU and LEE worked together and with others to ship what they knew to be export-controlled items to Hong Kong and China. For instance, in June 2019, ATI obtained electronics components – which are export-controlled under the CCL for missile technology, nuclear nonproliferation, and anti-terrorism reasons – from a U.S. supplier (“U.S. Supplier-1”), and then sent those components to a trading company in Hong Kong (“Hong Kong Trading Company-1”). In January 2020, ATI attempted to send to Hong Kong Trading Company-1 several electronic components, which are export-controlled under the CCL for national security, regional stability, missile technology, nuclear nonproliferation, and anti-terrorism reasons. After the January 2020 package was detained by law enforcement, YU and LEE discussed methods for evading future law enforcement scrutiny by, for instance, transshipping packages through South Korea, and by using a separate company based in New Jersey (the “New Jersey Reshipper”) to send shipments to Hong Kong in an attempt to avoid customs scrutiny of ATI’s shipments.
For instance, on February 12, 2020, LEE sent an email to another ATI customer located in Hong Kong (“Hong Kong Company-2”) stating that: “[W]e had delivery issue currently with customs, so we’ve decided to release all items to South Korea first and release to HK from Korea temporarily.” The next day, LEE received a response, which stated, in part, “Most of the items we buy from ATI are under ECCN restriction, so I guess ATI will stock in and release to [ATI’s branch in South Korea], and then ship to HK . . . am I correct?” LEE replied, “Yes you are right.”
On March 5, 2020, LEE responded to Hong Kong Company-2’s inquiry regarding whether ATI could sell certain components to China. LEE’s response, which copied YU, stated: “We’ve sold” the requested parts “to China customer many times. . . But currently we have customs issue so we don’t know how to handle it. [W]e are thinking we release all controlled parts to South Korea first then release to HK from Korea[.]”
Hong Kong Trading Company-1 also advised ATI on steps to take in order to evade U.S. export controls. For instance, Hong Kong Trading Company-1 advised YU and LEE to use a marker to obscure ATI’s name on labels, to cover each component with an electro-static discharge (“ESD”) bag, to remove all original documentation from the package, and to use the New Jersey Reshipper to send the shipment. On March 14, 2020, LEE sent an email to Hong Kong Trading Company-1, copying YU, stating: “We will follow your direction like adjusting invoice or removed label. But we do not have responsible if it will have problem during the transit to you. But for sure, we will do everything what you want for preparing shipments. We just hope that there is no more detained package.”
In April 2020, ATI sent a package of components to Hong Kong Trading Company-1 using the New Jersey Reshipper. The package was inspected and detained by U.S. customs authorities. Consistent with Hong Kong Trading Company-1’s instructions, the components had been placed in ESD bags labelled with part numbers different from the actual part numbers. One of the components in the April 2020 shipment was export-controlled under the CCL for national security and anti-terrorism.
Financial and shipping records establish that ATI has had a long-standing relationship with Hong Kong Trading Company-1. Between August 2016 and July 2020, ATI shipped more than 200 packages to Hong Kong Trading Company-1. In the one-year period between May 2019 and June 2020, Hong Kong Trading Company-1 transferred over $800,000 into ATI’s bank account in the United States.
No one involved in any of these transactions obtained the licenses required under the ECRA to export these dual-use components.
Commerce Acts Against International Procurement Network Supporting Iran’s Mahan Air
BIS issued a Temporary Denial Order (TDO) against six parties in Indonesia for operating an international procurement network of aircraft parts suppliers and repair facilities to acquire and repair U.S.-origin goods for Mahan Air in violation of U.S. law.
Named in the order are Sunarko Kuntjoro, Satrio Wihargo Sasmito, Triadi Senna Kuntjoro, PT MS Aero Support, PT Antasena Kreasi, and PT Kandiyasa Energi Utama. As set forth in the order, Respondents have been involved in operating an international procurement scheme to illegally obtain and repair U.S.-origin aircraft parts on behalf of Mahan Air and Mustafa Oveici (Oveici), an Iranian executive for Mahan Air. Mahan Air has been on BIS’s Denied Persons List since March 2008, due to numerous significant, continuing, deliberate, and covert violations of the Export Administration Regulations (EAR). Oveici was placed on the BIS Entity List in December 2013. Previously, the Department of Justice announced indictments against four of these businesses and individuals in federal court for charges including conspiracy to violate the International Emergency Economic Powers Act, international money laundering, and false statements. Mahan Air was designated by the Treasury Department pursuant to Executive Order (E.O.) 13224 in October 2011 for providing financial, material, and technological support to the Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF).
TDOs deny the export privileges of a company or individual to prevent an imminent or on-going export control violation. These orders are issued for a renewable 180-day period and cut-off not only the right to export from the United States, but also the right to receive or participate in exports from the United States. A TDO also prohibits third parties from exporting or reexporting any item subject to the EAR to or on behalf of a denied person.
Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and An Individual
A natural U.S. person(“U.S. Person-1”)has agreed to pay $5,000 to settle their potential civil liability for engaging in at least 24 transactions for the benefit of a foreign individual who at the time was a specially designated narcotics trafficker.The apparent violations arose out of a personal relationship that U.S. Person-1maintained with the specially designated narcotics trafficker while U.S. Person-1was stationed overseas at a U.S. embassy.
At the time of the apparent violations, U.S. Person-1was a civilian direct hire of the U.S. Army and stationed in the U.S. embassy in Bogota, Colombia (the “embassy”). U.S. Person-1’s position at the embassy required a security clearance. U.S. Person-1also held many national security-related positions prior to being stationed at the embassy.In 2015, the foreign individual,who at the time was a specially designated narcotics trafficker(“SDNT-1”),was in the embassy for a meeting regarding their designation status (the “embassy meeting”).1Forthe embassy meeting, SDNT-1was accompanied by a former host nation official who OFAC would also later designate as a specially designated narcotics trafficker (“SDNT-2”). Although U.S. Person-1was not party to the embassy meeting nor involved in the topics discussed, U.S. Person-1hada preexisting professional relationship with SDNT-2at the time.2After the embassy meeting, SDNT-2introducedSDNT-1to U.S. Person-1.
Shortly thereafter, U.S. Person-1and SDNT-1maintained contact and started a personal relationship.
U.S. Person-1was aware that they were having a personal relationship with a specially designated narcotics trafficker. Nonetheless, over the course of a year, U.S. Person-1bought jewelry, meals, clothing, hotel rooms, and other gifts for SDNT-1whileSDNT-1was seeking to be removed from the SDN List. During the relationship, U.S. Person-1conducted internet research concerning the legality of engaging in transactions with persons on OFAC’s Specially Designated National and Blocked Persons List (the “SDN List”), but did not seek further counseling or advice from the various government and legal resources that were readily available in the embassy or by their employer. As a result, U.S. Person-1appears to have violated 31 C.F.R. § 598.203 of the Foreign Narcotics Kingpin Sanctions Regulations, 31 C.F.R. part598 (FNKSR) on at least 24 occasions when U.S. Person-1engaged in transactions that constituted prohibited dealings in blocked property or interests in property of an individual previously identified on the SDN List as a specially designated narcotics trafficker (the “Apparent Violations”). The total transaction value of the Apparent Violations was about $3,349.33.
International firearms trafficker sentenced to more than 2 years in federal prison
A Florida man was sentenced in August to two years and nine months in federal prison for theft of government property and smuggling goods from the United States, in violation of the International Traffic in Arms Regulations. According to court documents and evidence presented at the sentencing hearing, between 2011 and 2018, Vladimir Volgaev, 69, of Sarasota, shipped more than 1,600 firearm components – including barrels, slides, receivers, and frames – from the United States to Ukraine. These components were used to construct fully functional firearms, including handguns and rifles. While engaged in this conduct, Volgaev lived in housing subsidized by HUD. In periodic renewal applications, Volgaev lied to HUD about his personal finances, including the income he had gained from illicit firearm trafficking.