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Export Control Violations Used to Evade Sanctions

Export Control Violations Used to Evade Sanctions

Over the past few years, the U.S. government has really cracked down on companies and people trying to get around economic sanctions and export controls. These laws restrict exports and financial transactions with certain countries, groups, and individuals for national security and foreign policy reasons. But some companies try to get around the rules by using complicated trade setups and third parties.Let’s break down the legal background here, what the government is doing to enforce the rules, how companies can stay compliant, and what kind of penalties violators face.

The Laws Around Sanctions and Exports

The U.S. has extensive export controls and sanctions programs. The big agencies in charge are the Commerce Department’s Bureau of Industry and Security (BIS), the Treasury Department’s Office of Foreign Assets Control (OFAC), and the Justice Department’s National Security Division (NSD).Export control laws govern the export, re-export, and transfer of sensitive goods, software, and technology, including “dual-use” items with civilian and military uses. Companies have to get licenses and follow procedures to export these items.Sanctions programs block financial transactions and trade with certain countries, groups, and people. OFAC puts out lists of sanctioned parties that U.S. companies have to screen against.Breaking these complex rules can lead to huge civil and criminal penalties. Intentionally evading sanctions or export controls is a federal crime that can mean massive fines and even jail time for company executives.

The Government Cracks Down

Lately, the Biden administration has made investigating and prosecuting sanctions evasion and export control violations a big priority, especially related to Russia.In March 2022, the Justice Department said it was hiring more prosecutors to go after economic crimes and sanctions offenses. There’s also been more coordination between agencies like Justice, Commerce, and Treasury. For the first time, they issued joint guidance on compliance.The government has targeted specific tactics used to evade Russia sanctions after its invasion of Ukraine. A big focus is using third parties to hide the involvement of sanctioned parties in deals and exports. Complex corporate structures and front companies registered abroad are sometimes used to obscure who’s really involved.U.S. authorities have even seized luxury assets like private jets and yachts owned by sanctioned Russian oligarchs. Prosecutors are going after individual liability for corporate executives who enable violations.

How to Stay Compliant

Given the heightened enforcement climate, companies in international trade and finance need to re-evaluate their compliance programs. Experts recommend several best practices:

• Do risk-based due diligence on all third parties and partners involved in exports or transactions, not just direct customers.
• Screen all parties against OFAC, BIS, and other restricted party lists. Use the U.S. Consolidated Screening List as a single source.
• Update compliance programs as sanctions and export rules rapidly change, especially on Russia.
• Train employees to spot potential sanctions evasion red flags highlighted in government guidance.
• Conduct periodic audits to find any violations and consider voluntary self-disclosure to reduce penalties.

Penalties for Violations

The penalties for dodging sanctions and export controls can be severe, especially with tougher enforcement:

• Civil fines up to $300,000 per violation or twice the transaction value.
• Criminal fines up to $1 million per violation for companies and $250,000 per violation for individuals.
• Up to 20 years in prison for willful violations.
• Loss of export privileges and debarment from government contracting.
• Reputational damage and bad publicity from enforcement actions.

However, voluntarily disclosing issues and cooperating with investigations can lead to much lower penalties.The bottom line is that with sanctions on Russia expanding, companies need to ensure their compliance programs are up-to-date to avoid severe punishment. Proactive due diligence, screening all parties, and quickly fixing any violations found can help reduce enforcement risk. But intentionally evading sanctions using complex trades could still result in massive fines or even jail time given the current environment.