Office of Export Enforcement

Office of Export EnforcementJohn SondermanSupervisory Special AgentOperations Division

Export Enforcement’s RoleProtect National Security andForeign Policy Goals– Prevention and Detection– Investigation and Prosecution– Domestic and International LawEnforcement Cooperation

Office of ExportEnforcementRegionsSan JoseChicagoBostonNewYorkIrvineDallasWashingtonFt. Lauderdale

Preventive Enforcement Activities Develop watchlists andscreen licenseapplications Check transactionsprior to issuing licenses Verify licensed end-usesafter shipment Review Shipper’s ExportDeclarations Review Visa applications

Investigations and ProsecutionInvestigations– Criminal– AdministrativePenalties– Criminal Fines andImprisonment– Civil Penalties– Denial of ExportPrivileges

Criminal Fines and PenaltiesWillful Violations $1 million per violation - corporations $250,000 per violation - individuals 10 years imprisonment per violation

CIVIL PENALTIES$100,000 per violation of nationalsecurity controlled items– July 1995, Halliburton fined $2.6 million– January 1995, Teledyne fined $2 million Seizure of goods

Five Root CausesEnforcement Cases

INCOMPLETE TRANSACTIONINFORMATION Unknown End-user or End-use Multiple parties to a transaction Correct product classification Identify all parties to a transaction, verify aslegitimate intermediaries and ultimateconsignees.

Ignoring Red Flags Person ordering the technology isunfamiliar with product or technicalinformation regarding end-use Inappropriate end-user – banks, overseasfreight forwarders, etc. Conflicting information on salesdocumentation and export routingcorrespondence.

Human Error Overwhelmed by end of quarter orders andprocessing New personnel using outdated go-bydocumentation Export manager on vacation (cross trainback up personnel) Lack of communication with sales staff andforeign distributors.

Incomplete/incorrect SED Filing Wrong ECCN Improper use of NLR (No license required) Wrong Ultimate Consignee Non-conformance of documents

Failure to Inform on licenseconditions Identify all license conditions issued andidentify any conflict with sales transaction,resolve any conflicts before proceeding withtransaction. Even if this means amendingthe license! Notify intermediate and ultimate consigneesof the BIS license conditions Submit all reporting as required by BISlicense.

When You find a Violation Notify management Identify and contain immediate violation Conduct internal audit for scope of problem Disclose problem to BIS/OEE promptly andcompletely

Top Cape – Asher Karni

Silicon Graphics, Inc.• January 7, 2003• Pled guilty to two felony charges that thecompany violated Commerce Departmentregulations by illegally exporting highperformance computers to a Russian nuclearlaboratory in 1996• $1 million in criminal fines• $182,000 civil fine• Suspended denial of exporting privileges toRussia for a period of three years

Silicon Graphics, Inc.• SGI admitted that, on two occasions in 1996, thecompany exported four Challenge L computersystems, upgrades, and peripheral equipment tothe All-Russian Institute for Technical Physics(Chelyabinsk-70) in violation of U.S. exportcontrol regulations. Chelyabinsk-70, located inSnezhinsk, Russia, is a nuclear laboratory operatedby Russia’s Ministry of Atomic Energy and isengaged in research, development, testing, andmaintenance of nuclear devices.

Export Enforcement Case Study (Nuclear):IBM East Europe/Asia Ltd.

Arzamas-16 and Chelyabinsk-70In January 1997, a former MINATOMMinister Mikailov stated that Arzamas-16 and Chelyabinsk-70, two Russiannuclear research centers, hadpurchased a super-computer and serverwhich would increase their computingcapabilities ten fold.

InvestigationAn investigation revealed that in 1996 and1997 IBM East Europe/Asia Ltd., theRussian subsidiary of IBM, exportedcomputers to Arzamas-16, a Russiannuclear weapons lab, in violation of U.S.export laws and regulations

IBM East Europe/Asia, Ltd. Penalized On July 31, 1998, IBM-Russia pled guiltyto illegal export of computers to a Russiannuclear weapons laboratory Criminal fine: $8.5 million Civil penalty: $171,000– Maximum permitted

Entities List -Russian Nuclear Weapons LabsEntity License Requirement License Review Policy Federal Register CitationAll-Union Scientific Research Institute ofExperimental Physics, (aka VNIIEF,Arzamas-16, Russian Federal NuclearCenter, All Russian Research Institute ofExperimental Physics, ARIEP, KharitonInstitute) located in either Snezhinsk orKremlevAll items subject to the EAR Case-by-case basis 62 FR 35334 - 6/30/97All-Russian Scientific Research Instituteof Technical Physics, (aka VNIITF,Chelyabinsk-70, all-Russian ResearchInstitute of Technical Physics, ARITP,Russian Federal Nuclear Center)located in either Snezhinsk or KremlevAll items subject to the EAR Case-by-case basis 62 FR 35334 - 6/30/97