On March 9, 2006, President Bush signed into law the 2005 USA Patriot Improvement and Reauthorization Act. Section 402 increased the civil and criminal penalties for violating the International Emergency Economic Powers Act (IEEPA) and regulations, licenses and orders under IEEPA. Civil fines go from $11,000 per violation, adjusted for inflation from $10,000, to $50,000 per violation. Criminal fines for willful violations are increased from 10 to 20 years in prison. The changes are effective March 9, 2006, the date of signing.

Since the Export Administration Regulations and many OFAC sanctions regulations (such as Iran and Sudan as well as many of the other regulations) are promulgated (or continued) under IEEPA authority, this change affects a significant portion of US exports.

Below we have provided Section 402 of the 2005 USA Patriot Improvement and Reauthorization Act and its effect on IEEPA, 50 U.S.C. 1705.

SEC. 402. INCREASED PENALTIES FOR TERRORISM FINANCING.

Section 206 of the International Emergency Economic Powers Act (50 U.S.C. 1705) is amended—

(1) in subsection (a), by deleting ‘‘$10,000’’ and inserting ‘‘$50,000’’; and

(2) in subsection (b), by deleting ‘‘ten years’’ and inserting ‘‘twenty years’’.

The effect of these changes can be seen below:
50 U.S.C. Sec. 1705. Penalties

(a) A civil penalty of not to exceed $10,000 $50,000 may be imposed on any person who violates, or attempts to violate, any license, order, or regulation issued under this chapter.

(b) Whoever willfully violates, or willfully attempts to violate, any license, order, or regulation issued under this chapter shall, upon conviction, be fined not more than $50,000, or, if a natural person, may be imprisoned for not more than ten twenty years, or both; and any officer, director, or agent of any corporation who knowingly participates in such violation may be punished by a like fine, imprisonment, or both.

The Bureau of Industry and Security (BIS) is reportedly considering its current penalty guidelines in light of the change. Currently BIS has used its discretion to determine how many violations to charge for a single export, starting from a minimum of two violations (one for the shipment, and one for the missing or incorrect SED), to three violations (where BIS has been able, based on the facts, to allege that the violation was “knowing”), to in rare cases four or more violations (where a conspiracy or other charge can also be added). Where the violation involves a country embargoed under IEEPA (e.g. Iran and Sudan), another violation from OFAC could in theory bring the number of violations to three, four or even five depending on the facts. At $11,000 per violation, this brought the penalties for IEEPA based embargoed country transactions to a maximum of $33,000 for three (or $44,000 for four where a knowing violation was added). BIS and OFAC would then apply their differing mitigation formulas for items such as voluntary disclosures (which have hovered around a 50% mitigation factor) and other elements (e.g. first time violation, compliance, cooperation), which could in turn raise mitigation levels to in the range of 65-70% for BIS and OFAC. (Note actual mitigation percentages have varied outside this range depending on the facts of the export in question. For example, short supply exports – such as red cedar to Canada – have benefited from much higher mitigation levels.)

At $50,000 per violation, however, the maximum would shoot to $150,000 to $200,000 per embargoed country shipment. Thus, BIS is reconsidering its penalty practices. Unless BIS determines to publish a guidance on the subject, however, we may have to wait for the first cases involving shipments after March 9, 2006 to move through the system, which may not be until 2007 or 2008, to see the effects of this change.

In addition, the increase in prison time from 10-20 years for willful IEEPA violations is also significant. Recent jury instructions in IEEPA cases equate “willful” with knowledge of general illegality (see instructions from Quinn below where defendant wound up with a 39 month prison term for an IEEPA violation). This, teamed up with the 10 to 20 year increase in prison terms, is significant difference for all exporters to consider going forward.

A finding that a defendant engaged in conduct with the intent to export goods to Iran is, by itself, insufficient to sustain a funding of guilt. The government must prove that the defendant engaged in that conduct with the intent to violate a known legal duty, that is, with knowledge of illegality.

While the government must show that the defendant knew that his conduct was illegal, it is not necessary for the government to prove that the defendant had read, was aware of, or had consulted the specific regulations governing his activities. In other words, in this case, the government is not required to prove that the defendant had read, was aware of, or had consulted the relevant Iranian Transaction Regulations, including the licensing requirement in those regulations. The government, however, must prove beyond a reasonable doubt that the defendant knew that his conduct was unlawful.”

NOTE ON IEEPA CRIMINAL PENALTIES: Although IEEPA provides that a willful violation has a maximum fine of $50,000 for corporations and a maximum fine of $50,000 or 20 years imprisonment, or both, for individuals, under the authority of 18 U.S.C. § 3571 the maximum criminal fine for a felony is the greater of the amount provided by the statute that was violated (in this case IEEPA), or an amount not greater than $500,000 for an organization and $250,000 for an individual (or twice the gross gain or loss). Because IEEPA did not specifically exempt offenses under it from the applicability of 18 U.S.C. § 3571, this higher maximum applies (i.e., an amount not greater than $500,000 for an organization and $250,000 for an individual).