EU and UK Export Controls and Sanctions

Enforcement Risks

Practical Insights on How to Address New,Evolving

Compliance Risks Affecting Your Global Business

American Conference Institute’s 17th National Forum on

Global Export Controls Compliance

June 12 & 13, 2014 Washington DC

Andrew W T Wood

Director,

Strategic Export Control

Marcus V. Alston

Senior Counsel –

Global Trade Compliance

Officer

Jasper Helder

Partner International Trade

A reminder of the EU regulatory landscape

– Export Controls: Dual Use, primary regulation on EU level

EU Dual Use Regulation 428/2009 (Annex I Control List)

Regulated on a national level:

Export licenses (general, global, individual) and T&Cs

Enforcement & penalties

– Export Controls: Military, regulation on national level, some EU

harmonization

EU Common Military List

EU Common export licensing criteria

– EU Sanctions Regulations

National additions exist (but rare)

EU and U.S. Sanctions Targets

Afghanistan

Belarus

Burma

DR Congo

Egypt

Tunisia

Libya

Eritrea

Somalia

Guinea and

Guinea-Bissau

Sudan and

South Sudan

Iraq

Ivory Coast

Iran

Liberia

Lebanon

North Korea

Syria

Yemen

Zimbabwe

China

SFRY

Armenia and

Azerbaijan

Cuba

USA (EU/Cuba

Blocking Measures)

Cyprus

Fiji

Haiti

Sri Lanka

Venezuela

Vietnam

Kuwait

EU and US

EU only

US only

US Anti-

Boycott only

Saudi Arabia

UAE

Central African

Republic

Russia/Crimea

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Red Flags must be Cleared

– “The measures set out in the present Regulation shall not give rise

to liability of any kind on the part of the natural or legal persons,

entities or bodies concerned, if they did not know, and had no

reasonable cause to suspect, that their actions would infringe

these prohibitions”

– Presumes due diligence measures have been taken (document!)

‘Knowledge defense’ in EU sanctions regulations

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EU Legal System

– Enforcement is regulated by national laws on national

level (but may be prompted by EU exchange of

information)

No EU rules on penalties (national criminal laws)

No EU rules in respect of enforcement (national codes of

criminal procedure/administrative laws)

– Common denominators between EU Member States

but also substantial differences

– Different cultures: from ‘Informed Compliance’ to

‘Enforced Compliance’

Enforcement Trends: ‘Globalization’

– Increased international co-operation

– New export control laws in countries outside the EU

and US

In the last several years Mongolia, Malaysia, Thailand, the

Philippines, the UAE, etc. have passed Strategic Trade Acts

or are considering doing do

– Extraditions

Granting extraditions for US export violations (Singapore,

Hong Kong, Germany, Czech Republic, United Kingdom)

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EU Detection of breaches

– Most EU Member States now have EDI customs

clearance systems (Germany: ATLAS, UK: CHIEF, NL:

SAGITTA) which is a key element of customs

modernization

– This permits the ‘screening’ of export declarations in

accordance with risk profiles implemented in these

systems

– Main ‘triggers’ for enforcement cases and investigations:

Detection of export declarations/shipments involving sanctioned

countries through these EDI customs clearance systems

Information obtained through the EU Intelligence Community

Increasingly: voluntary self-disclosures

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EU Enforcement Types

– Administrative enforcement

Audits

Withdrawal of licenses / use restrictions

Warning Letters

– Criminal enforcement

Investigations (commonly by Customs, who mostly are

authorized to conduct criminal investigations)

Prosecution (often by general Prosecution Authorities)

Settlement (in some EU Member States) with Prosecutor /

Customs

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EU Enforcement

– National administrations may have duty to report

violations to prosecuting authorities → may impede

voluntary self-disclosures

– Prosecuting authorities may have discretion to refrain

from prosecution → transparency as well as criteria for

prosecution vary between EU Member States

– Just because cases aren’t publicized as much does not

mean that there is no enforcement: companies try to

settle investigation out of Court to avoid negative

publicity

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EU Enforcement

– While EU sanctions legislation has significantly

increased, there is little published enforcement history

– Historical emphasis on weapons of mass destruction and

arms embargoes in combination with sanctioned

countries

– Prosecution not always based on export controls

breaches but often on common criminal offenses (e.g.,

forgery of documents)

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EU Enforcement Examples – In 2004 a German business man and a trading

company manager were convicted to 4 years and 15

months of imprisonment respectively for the (attempted)

export of aluminum tubes to North Korea, despite a

catch-all decision. The tubes could be used in

commercial products as well as in the construction of

gas ultra-centrifuges for uranium enrichment. District Court of Stuttgart, Case 10 KLs 141 Js 28271/03, Judgement of 28 May 2004 (reported in ‘Enforcing European Union

Law on Exports of Dual-use Goods’, Anna Wetter, SIPRI Research Report no. 24)

– Gotthard L. sentenced to 5 1/2 years for procurement

support of ultracentrifuges for Libya and AQ Kahn

network (forfeited proceeds of Euro 3.5 million) Oberlandesgericht Stuttgart, judgment of 31 October 2008, reported in press release by the Court

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EU Enforcement Examples

– Conviction (4 months) for attempts to export dual use

electronic items, thyratrons with ECCN 3A228, which

can be used as ignition in nuclear weapons to Iran.

Quashed in appeal but sentence maintained in view of

falsification charges. District Court of Halmstad, Case B 2051-99, Judgement of 25 Nov. 1999; and Court of Appeal for Western Sweden, Case B

5985-99, Judgement of 6 Sep. 2000 (reported in ‘Enforcing European Union Law on Exports of Dual-use Goods’, Anna

Wetter, SIPRI Research Report no. 24)

– Conviction (suspended sentence) for knowingly trying

to export non-corrosive valves to Iran. The suspect

wrote that the producers of the valves were not aware

of their end use. Reported on 6 February 2013 on Nuclear Export Controls Blog

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EU Enforcement Examples

– July 2012: Businessman knowingly attempting to sell surface to air missiles (from

North Korea) and Beretta pistols to Azerbaijan without a license and despite an

arms embargo. He was jailed to three ½ years for the missiles and to 2 1/2 years

for the handguns.

Reported on UK BIS ECO prosecutions blog

– December 2011: Two British citizens were convicted (12 and 6 months’ suspended

sentence) for knowingly attempting to breach EU export controls, by seeking to

ship prohibited goods (electrical switchgear) to a factory in Iran. Quashed in appeal

due to unconscious bias of one of the jurors.

Reported by BBC news, court of appeal judgment

– October 2010: Business owner jailed for selling controlled goods without a license

to Iran: a businessman has been jailed for eight months and ordered to pay

£30,000 costs for knowingly exporting controlled goods (in particular the supply of

radiation detection equipment) to Iran without an export license.

Reported on UK BIS ECO prosecutions blog

–

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EU Enforcement Examples

– The suspect (Kouwenhoven) was director of timber operations of

Oriental Timber Company and the Royal Timber Company.

– It was alleged that while serving in these positions he had close

ties with Charles Taylor and facilitated the import of arms for

Taylor in contravention of UN Security Council resolutions.

– Kouwenhoven was prosecuted for war crimes and sanctions

violations, convicted in first instance, overturned in appeal,

cassation pending. District Court of The Hague, 7 June 2006, appeal: Court of Appeals The Hague, 10 March 2008

EU Factors in Enforcement and Prosecution

– Limited resources: the number of officials in authorities

varies significantly between EU Member States

– Proliferation of authorities:

Customs (detection, investigations)

Ministry of Finance, Central Bank, Financial Authorities

(financial sanctions)

Ministries of Commerce / Trade / Economic Affairs & related

licensing agencies (export controls, non-proliferation)

Prosecution (often general authority, specialist expertise not

always present in all EU Member States)

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Enforcement : US vs. EU

Civil versus criminal (civil

accounts for significant penalties)

Publicity

Established and regulated self

disclosure practice

Extensive jurisdiction

Administrative versus criminal

(some EU Member States:

forfeiture of proceeds of crime)

Less public (settlements are often

not disclosed)

Self disclosure practice varies

between EU Member States (e.g.

UK/NL well developed,

Southern/Eastern EU less

developed)

Jurisdiction on EU Member States

level

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– How serious is the violation?

– Is a disclosure to government authorities required by contract, foreign regulation or materiality from a securities law perspective?

– Importance of being the first to disclose?

– Risk of current / former employees, business partners or customers disclosing infringements as part of their own disclosure or whistle-blowing

– Likelihood of detection

– Compliance culture

– Multi-jurisdictional investigations – how disclosure in one jurisdiction will affect non-disclosure in other jurisdictions

– Voluntary cooperation – has it previously been credited? How certain and predictable is it?

Deciding to Disclose or Not

– National administrations may have duty to report violations to Prosecuting Authorities

– Prosecuting Authorities may not have discretion to refrain from prosecution

– What response to expect: transparancy varies between EU Member States

Guidelines for prosecution not commonly established or publicly available

No public reporting on concrete cases in most EU Member States

Where settlements occur, these are not commonly published

Where settlement is possible, no published guidelines for amounts/measures

– In some EU Member States legal entities cannot be prosecuted for sanctions violations, only individuals Legal representatives (appointed directors/officers) liable

Company staff directly involved in relevant transactions

Deciding to Disclose or Not: EU considerations

Andrew W T Wood

Director,

Strategic Export Control

Marcus V. Alston

Senior Counsel –

Global Trade Compliance

Officer

Jasper Helder

Partner International Trade

Thank you.