U.S. Government’s enforcement cases over ZTE’s and PayPal’s violations are major showcases for potential consequences of ignoring the export control laws and denied party screening process.
ZTE Corporation, considered to be the largest telecommunications company in China, was on the news recently because of its violations of the U.S. government sanctions by exporting U.S. origin equipment to Iran and North Korea; both are listed in Country Group E:1 of the Export Administration Regulations (EAR), also known as terrorism supporting countries.
Specifically, company either directly or indirectly through a third company, shipped approximately $32 million worth of U.S. origin items to Iran which is an embargoed country, without appropriate export licenses received from the U.S. government agencies.
ZTE has agreed to pay $892,360,064 for its violations. This is the largest criminal fine and civil penalties that have ever been assessed against a company for violations of U.S. export controls and economic sanctions. Settlement included paying a penalty of $661 million in civil penalties to the Bureau of Industry and Security (BIS) for violations of the Export Administration Regulations (EAR). It also included mandatory engagement requirement with a third-party consultant to perform six annual export audits. Company further agreed to end-use verifications and to provide U.S. export compliance training to employees. In addition, another $100 million fine in civil penalties to OFAC for violations of the Iranian Transactions and Sanctions Regulations); and $286 million criminal fine to the Department of Justice for conspiracy to violate the International Emergency Economic Powers Act were also settled. This civil penalty was the largest ever imposed by the BIS.
On the other hand, what makes ZTE case unique is that it was OFAC’s largest settlement with a non-financial entity and the combined $1.19 billion in penalties from three departments (e.g. Department of Commerce, Department of Justice, and the Department of the Treasury), would be the largest fine ever levied by the U.S. government related to an export control violations.
PayPal case is another recent example where a company was involved in the business with sanctioned countries and denied persons and paid hefty penalties for violations. In march 2015 PayPal reached a settlement with the Treasury Department, agreeing to pay $7.7 million for allegedly processing payments to people in countries under sanction as well as to a man the US has listed as involved in the nuclear weapons black market.
The issue was PayPal neglecting the screening of its in-process transactions until 2013. Although the company made moves to prevent transactions involving sanctioned countries as early as 2006, its policies were lax until, in July 2011, the company implemented a “short term fix” in which PayPal could “scan live transactions for sanctions-related keywords and evaluate any potential matches while the completed payments were held in a pending status.” Apparently a short-term fix wasn’t sufficient to keep forbidden transactions from being processed and the company still ended up processing nearly 500 transactions to Sudan, Cuba, and Iran, as well as getting involved in transactions with denied individuals listed on the State Department’s list of Weapons of Mass Destruction proliferators.
The Treasury Department’s position was that, until April 2013 PayPal did not implement a long term solution in which the company did begin screening live transactions against OFAC’s List of Specially Designated Nationals and Blocked Persons.
These cases show just how much the U.S. government’s enforcement over the “Know Your Customer” requirements can be quite serious and penalizing. Linqs strongly suggests companies and organizations to have a robust export compliance program as well as adequate restricted and denied party screening process to vet the prospective and existing accounts, customers, suppliers, and other trade partners.
Ask how Linqs can help with the automation of your Restricted Party and Denied Party Screening process.