United States: Export and Economic Sanctions Penalties Increased

With all of the debate over renewal of other provisions of the PATRIOT Act, an unnoticed provision of the law recently signed by the President significantly increased penalties for violations of provisions of the International Emergency Economic Powers Act.

On March 9, 2006, President Bush signed the USA PATRIOT Improvement and Reauthorization Act of 2005, Pub. L. No. 109-177 (H.R. 3199). Included in the PATRIOT Act reauthorization legislation was the Combating Terrorism Financing Act of 2005 (Title IV), which included an amendment to the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-1706 (IEEPA).

IEEPA currently provides the underlying statutory authority for the Export Administration Regulations, 15 C.F.R. Parts 730-774 (EAR), and various economic sanctions regulations including those applicable to Iran and Sudan. The basic civil penalty amount for EAR violations has been $10,000 (see EAR § 764.3(a)(1)) and the basic civil penalties for violations of sanctions under IEEPA programs have been $11,000, which is the statutory $10,000 amount adjusted by the Federal Civil Penalties Inflation Adjustment Act (see, e.g., 31 C.F.R. § 560.701(a) and 31 C.F.R. § 538.701(a)).

Under Section 402 of the new law, the basic civil penalty amount for violations of the EAR and IEEPA sanctions regulations is now $50,000 per violation. The penalty for willful violations by individuals has been increased from 10 to 20 years imprisonment. The criminal fine remains at $50,000.

This five-fold increase in penalties for EAR and IEEPA violations is obviously significant. The increase, however, is not as drastic as the penalty increases in legislation proposed last December by Rep. Henry Hyde, Chairman of the House International Relations Committee. The Export Administration Renewal Act of 2005 (H.R. 4572) would increase civil penalties for EAR and IEEPA violations to $500,000. Criminal penalties for individuals would increase to the greater of ten times the value of the export or $1,000,000 and for corporations the greater of ten times the value of the export or $5,000,000. The IEEPA penalty increase in the PATRIOT Act reauthorization legislation may take some of the steam out of the Export Administration Act renewal effort, which the Administration is supporting.

These increased penalties significantly ratchet up the stakes for both inadvertent and intentional violations of the EAR and IEEPA sanctions regulations administered by the Treasury Department’s Office of Foreign Assets Control (OFAC).

Companies engaging in international transactions, including funds transfers and exports of products, software or technology, should ensure that their export management and compliance systems are sufficiently comprehensive and robust to prevent violations, including screening transactions against the OFAC List of Specially Designated Nationals and Blocked Persons and the Commerce Department’s Denied Persons and Entities Lists.

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