Enforcement: Sanctions - USA BIS - Chinese subsidiary of US company fined USD3.75 million

The case’s combined USD3.75 million in criminal and civil fines represent one of the largest monetary penalties for export violations in the history of the U.S. Department of Commerce’s Bureau of Industry and Security.

The guilty plea stemmed from actions by PPG Paints Trading that caused the illegal export, re-export and/or transshipment of high-performance coatings from the United States to the Chashma 2 Nuclear Power Plant in Pakistan (Chashma 2), via a third-party distributor in the People’s Republic of China.

As part of its plea agreement, PPG Paints Trading agreed to pay the maximum criminal fine of USD2 million, and serve five years of corporate probation. The gross proceeds received by PPG Paints Trading for these three illegal exports was USD32,319. As part of its plea agreement, PPG Paint Trading has forfeited the entire USD32,319 to the government.

PPG Paints Trading entered the guilty plea on 21 December 2010 and was sentenced that day in accordance with the terms of the plea agreement by the Honorable Judge Rosemary M. Collyer in U.S. District Court for the District of Columbia.

Under the terms of the related civil settlements, PPG Industries and PPG Paints Trading agreed to pay civil penalties of USD750,000 and USD1 million respectively.

To ensure that the companies maintain a future commitment to U.S. export controls compliance, the Bureau of Industry and Security also required an audit of 2011 and 2012 export transactions of PPG and its relevant business units in the United States and China, including transactions related to restricted end users on the agency’s Entity List and nuclear end uses and end users.

These cases emphasise the critical role that U.S. parent companies play in monitoring the activities of their subsidiaries dealing in U.S.-origin items that are subject to the Export Administration Regulations.

According to count one of the information filed with the court, beginning in or about June 2006 through in or about March 2007, PPG Paints Trading conspired to export high-performance PPG Industries’ coatings from the United States to Chashma 2, via China, without first having obtained the required export license from the Bureau of Industry and Security in violation of the Export Administration Regulations. Chashma 2 is a Pakistan Atomic Energy Commission power plant under construction near Kundian, Punjab province, Pakistan.

The Pakistan Atomic Energy Commission is the science and technology organisation in Pakistan responsible for Pakistan’s nuclear programme including the development and operation of nuclear power plants in Pakistan. In November 1998, following Pakistan’s first successful detonation of a nuclear device, the Commerce Department’s Bureau of Industry and Security added the Pakistan Atomic Energy Commission, as well as its subordinate nuclear reactors and power plants, to the list of prohibited end users under the Export Administration Regulations.

As a restricted end-user, a United States manufacturer seeking to export, reexport, or transship any items subject to the Export Administration Regulations to the Pakistan Atomic Energy Commission, or its nuclear power plants or reactors, would need first to obtain a licence from the Department of Commerce in the District of Columbia.

According to count one of the information, in January 2006, PPG Industries sought such an export licence for the shipments of coatings to Chashma 2. The Commerce Department denied that application in June 2006. Following that denial, the information states, PPG Paints Trading agreed upon an arrangement whereby it would sell the high-performance coatings to a third-party distributor in China which, in turn, would deliver the coatings for application at Chashma 2.

In its purchase orders for the shipments in question, PPG Paints Trading falsely stated that the coatings were to be used at a nuclear power plant in China, the export of goods to which would not require a licence from the Department of Commerce.

Counts two through four of the information state that PPG Paints Trading breached the International Emergency Economic Powers Act and the Export Administration Regulations when it wilfully exported, re-exported, and trans-shipped and/or attempted to export, re-export and trans-ship three shipments of coatings destined for Chashma 2 between June 2006 and March 2007 without the required Commerce Department licence.

The gross proceeds received by PPG Paints Trading for these three illegal exports was USD32,319.

As part of its plea agreement with the government, PPG Paint Trading has, in addition to paying a USD2 million criminal fine and USD1 million civil fine, forfeited the entire USD32,319 to the government.

U.S. Attorney Ronald C. Machen Jr. “This should serve as a warning to corporations that would breach U.S. export laws. It is not only unlawful, it is also bad business. In this case, the millions in fines to be paid by the corporate defendant are 100 times more than the gross proceeds generated by the unlawful export scheme.”