The next time your cutting those banana’s for your morning cereal or having a banana-split at an Oberweis ice-cream shop keep in mind that you may just be indirectly supporting a foreign terrorist organization.

In the world of export compliance, corporate practitioners are constantly faced with issues from deemed exports to foreign nationals, to export licenses for high technology items. But, bananas? You don’t need to be an expert to realize that under 15 CFR, you’re not going to find an ECCN classifying bananas (other than EAR99). So, who would ever think that growing and selling bananas could lead to a multi-million dollar penalty for violating the Export Administration Regulations and OFAC (Treasury Regulations)?

Well, that’s exactly what happened this past couple weeks, when the Department of Justice issued a $25 MUSD—yes, that’s a 25 million dollar penalty! – against Chiquita Brands International, for violating the above regulations. The case began back in 1997, when Chiquita began paying the United Self Defense Forces of Columbia (“AUC”) and Revolutionary Armed Forces of Columbia (“FARC”) payments for “protection” against attacks on its employees and fields where the bananas were grown. Although Chiquita may have had good reason to do so (motivated by their good faith for the safety of their employees), the payments continued for approximately another 7 years, totaling some $1.7MUSD in payments.

Both organizations that received these payments were listed on both U.S. and E.U. regulations as being terrorist organizations. The EAR and OFAC impose restrictions on exports (including financial assistance) to entities and individuals listed a s “Specially Designated Global Terrorists” (SDGTs), “Specially Designated Terrorists” (SDTs), or Foreign Terrorist Organizations (FTOs), under 15 CFT Part 744. Without a license, there are no exception that overcome these prohibitions. In addition to 15 CFR restrictions, there are additional regulations under both 31 CFR Parts 594 thru 597 that govern terrorist sanctions. Restrictions under 31 CFR 595 specifically prohibits “funding to or for the benefit of an SDT”.

To make this area of compliance even more confusing is the fact that an SDT or similar terrorist organization may request the assistance of a U.S. law firm for legal counsel, which court decisions have agreed, that OFAC may not require licenses for provision of legal services, but, may require a license for the law firm, before the law firm may accept payment for its services (31 CFR 595, 746 F.2d 865 (D.C.Cir.1984)).

In the case of Chiquita, one must be sympathetic with the reasons for making such payments—protection of its employees in an area within Colombia that has a strong presence of such terrorist organizations. Again, the decision ultimately is a business decision, on whether or not to continue operating a business or unit that may require violating the law (in this case, Chiquita has since sold that business unit). But, the case does raise another issue, which has been hotly debated for years—Chiquita voluntarily approached the Justice Department in 2003, which eventually led to a nearly 4 year civil and criminal investigation not only against the company, but also against some of its officers and directors within the scope of the investigation.

4 years is a long time for any compliance attorney or officer to undergo such an investigation, not to mention the internal costs to a company, attorney fees (which one can assume were in the millions), and eventually, a $25MUSD penalty—all of this after a voluntary disclosure and plea agreement. Oh yes, let’s not forget front page news coverage of “guilty for sponsoring terrorists”—I think Chiquita’s public relations department have their hands full today! So, where does that leave us as to the pro’s and con’s of voluntary disclosures? Well, you will have to just wait till next month’s newsletter, where this topic will be discussed. But, as of today (3/22/2007), the Chicago Tribune, printed an article on how, now, the Colombian Attorney General, Mr. Mario Iguaran, is not only asking for the information provided to the DOJ, but, Colombia is possibly looking at prosecuting, on a criminal level, the officials/directors in Chiquita, on this subject. Needless to say, extradition treaties exist between the USA and Colombia. In the interim, I’ll take hot fudge with my banana split!

By: Christos Linardakis, attorney
http://www.globaltradelaw.net

Posted on December 11th, 2007 by keeton
Filed under: EAR, News