September 12, 2016
By Anna Sayre, Legal Content Writer SanctionsAlert.com
The US has one of the most complex national systems of sanctions enforcement in the world. This system derives from the number of agencies that are empowered to initiate actions against violators of US sanctions. Because each US agency maintains a different “Do Not Touch” list, the restrictions that apply based on inclusion on the various lists may differ. Furthermore, the regulations issued by these various agencies often have areas of overlap. It is not uncommon for three or four US agencies to take action jointly, thus exposing a business to multiple investigations and varying penalties.
This article is the fourth in a series of articles on the role that US agencies play in sanctions enforcement. The series focuses on the role departments and agencies have in the enforcement, administration and investigation of sanctions violations.
Article four examines the role of the Justice Department, which can criminally prosecute willful violations of certain export controls and sanctions laws, along with other related criminal laws.
The Department of Justice (DOJ) has the power to investigate and prosecute violations of federal criminal laws, which includes willful violations of sanctions and export controls laws.
Under the International Emergency Economic Powers Act (IEEPA), the primary law under which US sanctions programs are issued, it is a crime to willfully violate, or attempt to violate, any regulation issued under the act. As such, individuals or entities may face criminal enforcement action by the DOJ. The DOJ typically prosecutes violations of sanctions programs through one of its 93 local US Attorney’s Offices, which work to enforce federal criminal laws throughout the country. DOJ Headquarters in Washington, DC often plays a role in these cases as well.
Criminal referrals to DOJ
In other articles in this series on US agencies, we explained the role of US Treasury’s OFAC and Department of Commerce’s BIS, which both play an important role in the administration of US sanctions and export controls regimes. The DOJ often works together with these and other law enforcement entities, at both the state and federal level, to investigate and prosecute for willful violations of US sanctions laws. Administrative and civil enforcement agencies that frequently collaborate with the DOJ include the Department of Treasury’s Office of Foreign Assets Control (OFAC), the Department of Commerce’s Bureau of Industry and Security (BIS), as well as the Department of State’s Directorate of Defense Trade Controls (DDTC), to name a few. Cases referred to the DOJ for criminal prosecution may still be concurrently subject to civil penalties or other administrative action from another agency. Therefore, what starts out as a purely civil or administrative matter can potentially become a white-collar criminal case with the risk of hefty fines and/or jail time.
In a recent case involving multiple agencies, Fokker Services B.V. (FSBV), a Dutch aerospace services provider agreed to forfeit $10.5 million in 2014 to the US for conspiring to violate the IEEPA by exporting aircraft parts and services to sanctioned countries. The Dutch company was charged criminally in federal court by the DOJ with knowingly and willfully conspiring to violate sanctions laws. In addition to the criminal penalty, the company also agreed to an additional $10.5 million civil penalty to settle OFAC and BIS charges for the same missteps.
NSD and CES
The National Security Division (NSD) of the DOJ was created in the wake of the September 11 terrorist attacks. NSD contains the Counterintelligence and Export Control Section (CES), which prosecutes and supervises cases affecting national security and US foreign relations, including espionage, illegal export of military and strategic commodities and certain cyber-related activity. NSD’s priority areas involve China, Iran and WMDs, all subject to export controls.
In June 2016, the CEO of Global Metallurgy LLC, an international metallurgical company based in New York, pleaded guilty to one count of conspiring to violate the IEEPA, in connection with the export of specialty metals from the US to Iran. The CEO in question, Mr. Kuyumcu, conspired to export a metallic powder composed of cobalt and nickel, a specialized metal that is closely regulated by the Department of Commerce, without having obtained the required license from OFAC. At sentencing, he will face up to 20 years in prison and a $1 million fine.
The DOJ’s Federal Bureau of Investigation (FBI) is the prime federal law enforcement agency of the US. The main priorities of the FBI are to combat terrorism, cyber-attacks, and transnational/national criminal organizations, fight white-collar crime and corruption, as well as protect civil rights. As such, it plays a major role in gathering and finding evidence to support criminal prosecutions brought by the DOJ, including for violations of sanctions laws.
The FBI is primarily a domestic agency, maintaining 56 field offices in major cities throughout the United States, and more than 400 resident agencies in lesser cities and areas across the nation. Despite its domestic focus, the FBI also maintains a significant international footprint, operating 60 Legal Attaché (LEGAT) offices and 15 sub-offices across the globe.
The DOJ’s Drug Enforcement Administration (DEA) mission is to enforce the US controlled substances laws and regulations. It has sole responsibility for coordinating and pursuing drug investigations both domestic, and abroad.
It plays a big role in some sanctions cases – generally those with a narcotics connection of some kind: For example, cases involving individuals or entities designated under a law known as the Kingpin Act, which prohibits all transactions between drugs traffickers and US companies and individuals, and freezes any of their assets in the US. As such, the DEA works closely with Treasury’s OFAC to attack and dismantle violent, deadly criminal organizations and individuals, including drug cartels, criminal networks, and terrorist organizations.
Another smaller arm of the DOJ is the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF). ATF is a law enforcement agency within the DOJ that protects against illegal use and trafficking of firearms, storage of explosives, acts of arson and bombings, acts of terrorism, and the illegal diversion of alcohol and tobacco products.
The ATF, with only an occasional role in sanctions, has a broad regulatory role concerning imports. It issues import permits for certain items, such as defense articles. Similar to the Department of State’s DDTC US Munitions List, the ATF keeps its own US Munitions Import List. The list can be found by clicking here. Occasionally, there will be an item on the ATF’s US Munitions Import List that is not covered by the DDTC’s US Munitions List. As such, when importing a good that could potentially be considered a defense article, it is good practice to check both lists so as to ascertain the correct license needed for that import.
The money laundering connection
The DOJ’s power to prosecute for money laundering violations can be predicated on an underlying sanctions violation. The principal US money laundering law, Title 18 US Code Sec. 1956, lists more than 220 “specified unlawful activities” (SUAs) that can serve as grounds for a money laundering prosecution. One of these SUAs is Section 206 of the IEEPA (Title 50, US Code Sec. 1705), which prescribes penalties for violating sanctions requirements imposed by OFAC.
US money laundering law, which is seen as one of the strictest anti-money laundering laws in the world, carries a maximum penalty of 20 years in prison and criminal fines of up to $500,000 per violation.
Actions by the DOJ against banks, corporations
Recently, the DOJ has come down hard on many foreign financial institutions for violating sanctions regulations. Most of these cases involve so-called wire transfer “stripping” associated with US dollar clearing. Stripping means that, before performing a wire transfer, the financial institution removed pertinent information such as customer names and/or addresses to avoid economic sanctions violation detection. In 2014, BNP Paribas and Commerzbank AG were required to pay almost $9 billion and $258 million, respectively, to resolve investigations into concealed transactions involving sanctioned entities.
The DOJ also has the power to pursue aggressive criminal actions against corporations for sanctions violations. In 2015, Schlumberger Oilfield Holdings Ltd, the world’s largest oilfield services company with principal offices in Paris, Houston, London and the Hague, paid $237 million in settlement and negotiated criminal plea. The DOJ charged a unit of Schlumberger with conspiracy to violate sanctions imposed against Iran and Sudan for facilitating prohibited trades with Iran and Sudan from their US-based unit in Texas. In addition to paying the rather steep fine, Schlumberger also succumbed to a three-year period of corporate probation, during which it must cease all prohibited operations and hire a consultant to review its sanctions compliance policy.
The DOJ’s ‘long-arm’
DOJ’s criminal enforcement authority is widely feared due to the Department’s strong investigative powers and the tough penalties it imposes, often including imprisonment. What is less well understood is that DOJ’s criminal jurisdiction can also be very broad, and can include companies and conduct that sometimes has only a tenuous link to the United States.
The aforementioned Schlumberger case is a prime example of this. One expert in the field, Peter Jeydel, an associate at Steptoe & Johnson LLP whose work focuses on US export controls and economic sanctions, characterizes the Schlumberger case as “a warning to the international business community about the long arm of the US criminal justice system when it comes to regulating international business transactions, in particular with countries like Iran.” Mr. Jeydel has co-authored a detailed analysis of the Schlumberger case, which can be read by clicking here.