International Law Advisory - Imminent Increase in Civil/Criminal Fines for Export/Sanctions Violations

October 2, 2007

The civil and criminal fines that can be imposed for violations of export control, anti-boycott and economic sanctions regulations are on the verge of a significant increase. As discussed more fully below, civil penalties are anticipated to increase soon from $50,000 per violation to $250,000 per violation or twice the amount of the transaction, whichever is greater; and criminal penalties likely will increase from $50,000 per violation to $1,000,000 per violation.

Today, the House passed the International Emergency Economic Powers Enhancement Act, a bill that would increase civil and criminal penalties available under the International Emergency Economic Powers Act (IEEPA). This bill was passed earlier by the Senate on June 26, 2007 and was not modified by the House. The bill had strong support from the Treasury Department, and the President is expected to sign the IEEPA Enhancement Act into law shortly.

Penalties for nearly all of the economic sanctions programs administered by the Treasury Department’s Office of Foreign Assets Control (OFAC) are authorized by IEEPA. In addition, with the lapse of the Export Administration Act (EAA), the Export Administration Regulations (EAR) of the Commerce Department’s Bureau of Industry and Security (BIS) are continued in force under the authority of IEEPA. Thus, as we previously reported, civil penalty levels for violations of the EAR also now are determined by IEEPA as BIS clarified in its August 4, 2006 rule. Given that BIS’s August 2006 rule considered only the application to the EAR of civil penalties under IEEPA, BIS expects to consider and issue an additional rule clarifying the EAR’s treatment of criminal penalties once the IEEPA Enhancement Act is signed into law.

Once the IEEPA Enhancement Act is signed by the President, the following changes are expected:

civil fines under IEEPA will increase from $50,000 to $250,000 or twice the amount of the transaction at issue, whichever is greater; and
criminal penalties will increase from $50,000 to up to $1,000,000 per violation, with the potential length of imprisonment (up to 20 years per violation) remaining unchanged.

Note that the civil fine had previously increased from $11,000 to $50,000 based on the USA PATRIOT ACT Improvement and Reauthorization Act of 2005.

In its letter to the House Committee on Foreign Affairs supporting the legislation, the Treasury Department noted that IEEPA penalties needed to be higher to keep fines from being perceived as a “cost of doing business.” Treasury also explained that it was now in the process of revising its enforcement guidelines with the goal of increasing sanctions compliance and fostering remediation.

We will keep you advised of any additional developments, including any forthcoming changes to BIS rules and/or OFAC enforcement guidelines. Should you have any questions regarding how these changes may affect your company, please contact Ed Krauland at 202.429.8083 or Julia Court Ryan at 202.429.6418.