International Trade and Technology Transfer (IT3) Alert: USA PATRIOT Reauthorization Act Increases Penalties and Imprisonment for Export Violations

    View Authors May 2006
    On March 9, 2006, President Bush signed into law the USA PATRIOT Improvement and Reauthorization Act (the "USA PATRIOT Reauthorization Act") (Pub. L. No. 109-177). Section 402 of the USA PATRIOT Reauthorization Act amends Section 206 of the International Emergency Economic Powers Act (IEEPA) by increasing the civil penalty that may be imposed for violations of IEEPA from US$11,000 per violation (taking account of inflation adjustment) to US$50,000 per violation and by increasing the possible maximum imprisonment term for violations of IEEPA from 10 years to 20 years.

    The new penalties apply to violations of both the Department of Commerce's Bureau of Industry and Security (BIS) Export Administration Regulations and the Department of the Treasury's Office of Foreign Assets Control (OFAC) economic sanctions regimes that are based on IEEPA, such as the Iran and Sudan controls. The increased penalties and terms of imprisonment are effective for violations that occur after March 9, 2006.

    The large monetary penalty increase raises questions as to whether there will be some compensating adjustments made in OFAC's and BIS' treatment of voluntary disclosures of violations subject to the new penalties. For example, BIS' current practice is to reduce applicable civil penalties by up to 50 percent in the case of violations voluntarily disclosed by the exporter. However, BIS typically finds that each individual improper transaction involves multiple violations of its regulations. Consequently, the maximum per-transaction civil fine applicable typically has been some multiple of US$11,000. If the same practice is followed when the new IEEPA penalties are applicable, individuals and companies considering making voluntary self-disclosures could be looking at massive potential penalties, even after a reduction of 50 percent. Absent some adjustment of the mitigation amount for voluntary disclosures, or a modification of the practice of stacking violations, incentives for making disclosures could be weakened. On the other hand, the adverse consequences of having failed to make a disclosure of a violation that is subsequently investigated by an enforcement agency also have increased substantially. There are unofficial reports that BIS is considering an adjustment in its penalty reduction practice, but nothing of the kind has been announced by either BIS or OFAC.

    For more information, contact George Grammas, +1.202.626.6234; Ritchie Thomas, +1.202.626.6686; Karen Harbaugh, +1.703.720.7885; or the Squire Sanders lawyer with whom you normally work.