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Small Companies are Susceptible to Export Control Enforcement Actions

March 7, 2014

Overview

A recent U.S. Office of Foreign Assets Control (OFAC) enforcement action illustrates how small businesses are not immune from government investigations and enforcement actions for alleged violations of export control laws. According to an OFAC press release, a small tech company settled the enforcement action by paying $504,225 for alleged violations of export control laws when its distributors re-exported broadband wireless goods to Iran.

The action involved a small tech company with a little over 100 employees. The action involved the company's distributors in the United Arab Emirates and Greece, which obtained broadband wireless goods pursuant to its distribution agreement with the small company. The distributor in turn re-exported the equipment to Iran. In determining the penalty amount, OFAC considered the fact that the small company did not have a compliance program in place and did not voluntarily disclose the alleged violations when it knew or had reason to know of the alleged violations, among other findings. OFAC's determinations highlight the dangers that small businesses face as they expand to the ‎global market without insight into the various complex export control laws regulating the ‎business. ‎

Here are the takeaways from the enforcement action:

· Small companies are just as susceptible to government investigations as large companies for alleged violations of export control laws, such as ITAR, EAR, and those laws enforced by OFAC.

· A compliance program is crucial for companies conducting international business.

· A company's executives and upper management must actively "buy in" to a compliance program and enforce it. All of a company's employees, distributors, and agents must know of and understand the compliance program.

· Foreign distribution or dealer agreements should contain representations, rights, and obligations to help U.S. companies mitigate the risk of violating export control laws.

· Companies should investigate their distributor's background and audit their practices.



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