Case Studies: Lessons from High-Profile U.S. Export Control Violations

Written By Robert Daquila

Export controls are critical tools used by the U.S. government to safeguard national security and foreign policy interests. However, companies sometimes violate these regulations, whether intentionally or inadvertently. This article examines three high-profile export control violation cases from the last 15 years, detailing the specific Code of Federal Regulations (CFR) violations, the context of each case, the consequences, and the remediation efforts undertaken by the companies involved.

ZTE Corporation (2017)

ZTE Corporation, a Chinese telecommunications giant, engaged in illegal exports of U.S.-origin technology to Iran and North Korea, despite U.S. sanctions prohibiting such activities. ZTE’s actions were further compounded by attempts to mislead U.S. investigators.

CFR Violation: ZTE violated several sections of the Export Administration Regulations (EAR), including:

  • 15 C.F.R. § 744.8(a): ZTE illegally exported U.S.-origin items to Iran and North Korea, both of which are subject to comprehensive U.S. sanctions.

  • 15 C.F.R. § 764.2(g): The company made false or misleading representations during the investigation, violating the EAR’s requirements for accurate reporting.

Consequences: ZTE faced a $1.19 billion penalty, one of the largest ever imposed in such cases, and a seven-year export denial order. This penalty severely impacted ZTE's business operations, limiting its access to critical U.S. technology.

Remediation: To address the violations, ZTE agreed to overhaul its leadership, enhance its compliance program, and submit to audits by U.S. regulators. These measures were part of ZTE’s commitment to comply with U.S. export controls moving forward.

FLIR Systems, Inc. (2018)

FLIR Systems, a U.S.-based company specializing in thermal imaging technology, was found to have exported controlled technology without proper licenses to dual-use destinations.

CFR Violation: FLIR Systems violated the EAR by failing to secure the necessary licenses for its exports:

  • 15 C.F.R. § 742.4: Covers the export of items controlled for National Security reasons. FLIR exported thermal imaging cameras to countries requiring a license without obtaining the necessary authorization.

  • 15 C.F.R. § 764.2: General prohibitions related to unauthorized exports. FLIR’s failure to secure the appropriate licenses before exporting these items constituted a violation of this regulation.

Consequences: FLIR Systems faced a $30 million settlement, including civil penalties and the obligation to enhance its compliance measures. The company’s reputation was also affected, and it had to rebuild trust with regulators.

Remediation: In response, FLIR Systems committed to overhauling its export compliance program, including better training, improved internal controls, and a robust monitoring system to prevent future violations.

Huawei Technologies Co., Ltd. (2019)

Huawei, another major Chinese telecommunications firm, faced allegations of violating U.S. export controls by conducting business in Iran through a subsidiary, Skycom, which involved the transfer of U.S.-origin goods.

CFR Violation: Huawei’s violations involved several sections of the EAR, particularly:

  • 15 C.F.R. § 736.2(b)(7): Prohibits exports, re-exports, and transfers of U.S.-origin goods to embargoed destinations, including Iran. Huawei, through its subsidiary Skycom, facilitated unauthorized transactions with Iran.

  • 15 C.F.R. § 744.11: Allows BIS to place entities on the Entity List if they are involved in activities contrary to U.S. national security or foreign policy interests. Huawei was added to the Entity List due to its involvement in unauthorized transactions and obstruction of justice.

Consequences: Huawei was placed on the U.S. Entity List, restricting its access to U.S. technology. This move disrupted Huawei's global supply chain and led to significant operational challenges.

Remediation: Huawei has contested the charges and sought to build an independent technology ecosystem free from U.S. components. However, the case remains unresolved, with ongoing legal battles and geopolitical tensions.

Conclusion

These cases underscore the importance of robust export compliance programs for companies involved in international trade. Violations of U.S. export controls can lead to severe penalties, operational disruptions, and long-term reputational damage. By understanding the specific CFR violations and implementing effective remediation strategies, businesses can better navigate the complexities of export control regulations and avoid costly violations.

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Sources Cited

Robert Daquila
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