Export Laws: Avoid The Scarlett Letter
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By Fred Shaheen and Johanna Reeves
Complex U.S. export control laws and regulations are here to stay. The federal government is serious about export control enforcement, and violators are being severely punished.
Apart from the fines and suspension issues, as serious as those are, is the importance of protecting a company’s reputation. Like Hester Prynne, the violator’s scarlet “V,” once adorned, is difficult to remove.
The U.S. attorney general in June announced a national export enforcement initiative to better identify, investigate and prosecute individual and corporate violators of U.S. export control laws. On Oct. 16, the president signed into law the International Emergency Economic Powers Enhancement Act, which increased civil and criminal penalties for violations of U.S. export control and economic sanctions regulations.
To further punish and deter violations, the government generally publicizes each settlement, plea or conviction in export control enforcement cases. Then follows the legal and regulatory pundits who, if the fine is sufficiently severe, will rehash the facts. The impact on existing and future business, especially for publicly traded companies or for companies seeking prime or a first- or second-tier contract, can be crushing.
Perhaps the tip of the iceberg was the congressional scrutiny of General Electric and Halliburton, each alleged to have ties with or derived profits from business with countries deemed to be state sponsors of terrorism. In both instances, the controversy surrounded Iran-based subsidiary activities. The legality of the alleged activities notwithstanding, the public flogging was merciless. For example, even the New York City comptroller, acting for the New York City Police and Fire Department Pension Funds, publicly called for reviews of GE, Halliburton, and ConocoPhillips in early 2003 because the pension funds held significant investments in the three companies.
There is also the infamous ITT Corp.’s plea to having willfully violated the Arms Export Control Act. The case was highly publicized and the long-term impact from a public relations standpoint remains to be seen. For instance, a July 2007 Reuters article, “Update 1 – ITT Corp. profit up on defense, water gear,” shows how these stories still haunt the company. Although the Reuters article heralded a rise in ITT’s second-quarter profits, it ended on this negative reminder: “Earlier this year, ITT became the first major defense contractor convicted of a criminal violation of the Arms Export Control Act, for illegally exporting night-vision goggle component parts to China, Singapore and Britain in 2001.” As recently as Oct. 12, a Wall Street Journal story, “Terrorism Concerns Prompt Greater Scrutiny of Exports,” addressed increased export control enforcement actions. The article references several cases, but the only violator specifically named is ITT.
Export control and anti-boycott and embargo public relations woes are not exclusive to the defense and aerospace industries. Chiquita Brands International was charged with paying $1.7 million through a subsidiary to a designated terrorist group in Colombia in violation of U.S. law. The investigation and prosecution of Chiquita has attracted intense media attention. Also available for all the world to see is the website, www.chiquitakills.org, which urgently warns: “Buy a Chiquita banana and support Colombian paramilitary terrorists!”
Companies engaged in business overseas must also be mindful of the Foreign Corrupt Practices Act (FCPA). The Titan Corp. is but one notable example of suffering the enormous financial adverse impact of mere allegations of FCPA violations. In September 2003, Lockheed Martin and Titan jointly announced an agreement for Lockheed to buy Titan. By June 2004, Lockheed aborted the deal in light of the Justice Department’s ongoing investigation of potential FCPA liability. Titan ultimately pled guilty in 2005 to violating the FCPA. Although L-3, Communication Corp. ended up buying Titan in June 2005, it was overshadowed by Titan’s FCPA violations that derailed the Lockheed merger.
Fred Shaheen [Shaheenf@gtlaw.com] chairs the government contracts and export control practices of Greenberg Traurig, LLP in Washington, D.C. Johanna Reeves [reevesj@gtlaw.com] is an associate in that practice. The opinions expressed here are solely those of the authors and are not intended to provide legal advice or represent the view of NDIA or the NDIA Ethics Committee.
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