Rogue Employees – An Export Control Compliance Program’s Worst NightmareMarch 2013 – Advisories
In recent years, news headlines have reflected the uptick in enforcement actions dealing with U.S. export control laws and regulations, including the U.S. Department of Commerce Export Administration Regulations, the U.S. Department of State International Traffic in Arms Regulations, and special sanction programs administered by the U.S. Treasury Department’s Office of Foreign Assets Control. Notably, two recent enforcement actions extended to criminal prosecutions by the U.S. Government.
In a January 2013 G&S Advisory, we discussed the raid by federal agents of Agiltron, a photonics company headquartered in Woburn, MA, for suspected export control violations. While it will be some time before we know the extent of the alleged violations at Agiltron, one thing is clear – the U.S. Government demonstrated the seriousness of its enforcement activities as it sent in over 100 federal agents to conduct the raid.
Even more recently in Pennsylvania, an employee of Amplifier Research, a manufacturer of microwave amplifiers, was sentenced to 42 months in prison for willfully and knowingly violating the International Emergency Economic Powers Act (IEEPA), and aiding and abetting. The employee worked as the Export Coordinator and Shipping Supervisor for Amplifier, and was responsible for obtaining all necessary export licenses for the company’s overseas shipments. Many of Amplifier’s products are used in military systems, including radar jamming and weapons guidance systems, and are controlled under the Export Administration Regulations and classified under ECCN 3A001. Such products require a license to export to many foreign destinations.
Between 2007 and 2011, the Amplifier employee failed to obtain necessary export licenses for 56 shipments of amplifiers. In order to ensure that the shipments would go through undetected, the employee lied about or altered the applicable ECCN on export documentation, listed false license numbers and/or lied to other employees about the status of licenses. The employee’s only explanation for his actions was that he was overwhelmed at work and was simply “too busy” to obtain the proper licenses. It is worth noting that the prosecution indicated that the employee had received extensive training from Amplifier on which goods and countries required export licenses and how to obtain the necessary licenses.
In addition to the personal liability of the employee, Amplifier itself is now facing an administrative proceeding in connection with its employee’s actions. The company is facing a possible penalty of $14 million due to the involvement of National Security items. This sum is in addition to the expenses (including legal fees) that Amplifier has already spent and will continue to spend until the administrative proceeding is concluded. Beyond the immediate financial implications, the company also faces reputational damage and the potential loss of customers in the short and long terms.
What, then, could Amplifier have done differently? From the court documentation, it appears that Amplifier had adequate compliance procedures in place, and that the company trained its personnel on a regular basis. However, despite these efforts, it is clear that the company did not have adequate checks and balances built into its compliance program, including a robust audit program.
In order to ensure effectiveness, every compliance program must be audited on a consistent basis (e.g., annually or semi-annually) in order to verify that:
- Employees are following the procedures as written, and
- The procedures remain current with the ever changing realities of day-to-day business operations and legal requirements.
The Amplifier employee’s actions took place over an extended period of time. If Amplifier had performed sufficiently robust audits in a consistent manner, it is likely that the employee’s actions would have been detected much sooner. While it is sometimes impossible to stop an employee from willfully committing a crime, all companies can implement procedures to test their compliance program and, in turn, minimize the risk that these types of violations will occur.
For additional information regarding U.S. export controls, or help with any export control compliance matter, including assistance auditing your compliance program, please contact Kerry T. Scarlott as follows:
This newsletter should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and any specific legal questions you may have.
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