Embargo Violations: Ignorance is No Excuse

Q:I recently read that DHL paid a $9.4-million fine to settle a claim by the United States for violations of sanctions against shipments to Iran. Can you discuss what happened and how I can avoid a case like this?

A:The case you refer to was an action taken by the U.S. Treasury Department regarding 309 shipments DHL, part of German global transport company Deutsche Post DHL, made from the United States to Iran and Sudan between 2002 and 2007. The government alleged that the shipments had been made in violation of U.S. embargoes.

The allegations also charged DHL with failure to maintain certain required records on approximately 9,000 shipments it made to Iran during the same period. Most of the shipments involved correspondence, personal items, and consumer goods, and it was not alleged that any of the shipments contained goods that compromised U.S. security.

DHL neither admitted nor denied the charges, but reportedly cooperated fully in the investigation, entering into the settlement agreement to resolve the matter amicably. The case is significant because it allegedly represents one of the largest penalties ever levied on a logistics operator for violations of U.S. embargoes against shipments to certain countries.

The case demonstrates the importance of logistics operators keeping abreast of federal regulations affecting the transport of goods from the United States to certain foreign countries. In addition to risking a government inquiry, the operator may have to address the inquiry without the aid of any insurance cover.

Although some insurers do provide coverage for fines and duties arising from the breach of import and export regulations, they will likely refuse to cover risks arising from illegal trade or from a breach of regulations about which the operator should reasonably have known. In a case such as DHL’s, an insurer might argue that an operator could reasonably have known about the sanctions.

Regardless of the circumstances of this case, it serves as a reminder for the need to maintain good internal housekeeping procedures, including the following:

• Keep apprised of government regulations by meeting regularly with your legal department or outside regulatory counsel. Many companies have established internal compliance departments or have appointed compliance officers to monitor government regulations.
• Know your customer.If a customer ships goods of a particular nature, or transacts business in regions that may be subject to heightened scrutiny, it benefits you to understand this and to address those particular requirements.
• Establish an internal system to flag shipments that can potentially run afoul of regulatory prohibitions. Be alert for specific commodities that require additional documentary support, or for transactions to countries that are the potential targets of governmental action. Always ensure that you keep appropriate records for these shipments.

In this time of heightened security, it can prove costly, even burdensome, for a multinational company to remain cognizant of every law or regulation that can impact its operations. What is legal in one country may not be in another. But if we don’t take reasonable steps to meet this challenge, we may find ourselves paying a far greater price.

Have a liability question or concern? I will try to help. Please send your questions to me via e-mail at: [email protected]