Congress Significantly Increases Civil and Criminal Penalties for Export and Sanctions Violations
On October 16, 2007, President Bush signed the International Emergency Economic Powers Enhancement Act. This law amends the International Emergency Economic Powers Act of 1977 (IEEPA) by substantially increasing penalties. Generally, IEEPA gives the President broad authority to regulate financial transactions in which any foreign entity has an interest. It also serves as the statutory basis for imposing penalties for export violations under the Export Administration Regulations (EAR) administered by the Department of Commerce, as well as a number of economic sanctions programs administered by the Department of the Treasury.
Changes to IEEPA
The amendment significantly increases civil and criminal penalties for export and sanctions violations. Under the amended IEEPA, the maximum civil penalty per violation increases from $50,000 to the greater of $250,000 or twice the amount of the transaction that is the basis of the violation. The changes also raise the maximum criminal penalty per violation from $50,000 to $1,000,000. The maximum prison term for criminal violations remains 20 years.
The legislation also specifies the effective date of the new penalties. The new civil penalties will apply to violations with respect to which enforcement action is pending or commenced on or after the date of the enactment. The new criminal penalties will apply to violations with respect to which enforcement action is commenced on or after the date of enactment.
Effect of the New Law on Exporters
Navigating the U.S. export control system can be complex and burdensome as licensing responsibility is divided among several U.S. agencies. Commerce regulates the export of “dual-use” goods, the State Department regulates the export of defense articles, and Treasury regulates transactions with embargoed countries and entities. To a lesser extent, the Departments of Defense, Energy, and Justice also regulate exports.
In the past, Commerce and Treasury routinely charged a violator with multiple counts for the same underlying transaction. While Mario Mancuso, Undersecretary for Industry and Security at Commerce, affirmed to Congress that it is Commerce’s intent to “ensure that the punishment fits the violation,”1 it remains to be seen how the new law will be applied.
Furthermore, the new legislation envisions retroactive application with respect to past violations. Imposition of the increased penalty amounts is based on the date that the enforcement action commences, not the date that the violation occurred. It would appear that the timing provision of the Act will be headed for a court challenge as an unconstitutional retroactive punishment.
How to Avoid Export Violations
The U.S. government strictly enforces export controls, as they often involve matters of national interest and security. Critics of the increased IEEPA penalties fear small businesses may be hit particularly hard. Congressman Don Manzullo (R-IL) stated during the bill’s mark-up that the Departments of Commerce and Treasury must conduct more outreach because of “the lack of knowledge most small businesses have regarding issues related to sanctions.”2
Commerce has implemented a system that reduces, or mitigates, the penalty depending on the circumstances. Some of the factors taken into account include:
- whether the exporter submitted a voluntary self-disclosure in the case
- whether the exporter had an export compliance program in place at the time of the violation
- whether the exporter has a prior conviction for export control violations
- whether the exporter is taking steps to implement or upgrade its compliance program
- how cooperative the exporter is with the investigation by export enforcement officials
Exporters can best avoid the increased IEEPA penalties by creating effective and well-tailored compliance programs. These internal programs often include a compliance program manual, training for employees, regular auditing, and clear guidelines for recordkeeping. Finally, if you discover that you may have violated the EAR or an embargo regulation, you should promptly file a voluntary disclosure with Commerce Bureau of Industry and Security (BIS) or Treasury Office of Foreign Assets Control (OFAC). Both agencies view voluntary disclosure as their biggest mitigating factor, with BIS policy set at an automatic reduction of penalties by 50 percent, unless there are substantial aggravating factors.
1 Letter from Mario Mancuso to Hon. Donald A. Manzullo, House of Representatives (September 26, 2007).
2 Colloquy between Rep. Manzullo and Chairman Lantos during House Committee mark-up regarding IEEPA (October 2, 2007).