The consequences of non-compliance: What do recent fines mean for companies?

Legislation | MIC Customs Solutions

What lessons can firms learn from recent penalties handed out for failures to comply with export control regulations?

Compliance should always be a key priority when managing international imports and exports. As well as ensuring companies are paying the correct amount of duties for the goods or components that are moving around the world, it's essential that firms are familiar with any potential restrictions such as quotas, licences, export controls or other sanctions that may restrict who they can do business with.

This has become an even bigger concern in recent years as numerous jurisdictions have sought to tighten and enforce their rules. This can mean serious consequences for businesses that fail to perform their due diligence when importing or exporting. 
Why compliance matters

A key reason for an effective compliance program is to ensure traders are fully aware of who they are doing businesses with and their partners are not subject to any international export restrictions or sanctions.

With hundreds of different lists of sanctions around the world that are constantly being updated, this is no easy task. However, the costs of failing to comply with these rules can be severe. Financial penalties can quickly run into millions or even tens of millions of dollars in serious cases, while there are also the possibilities of criminal charges and even prison sentences for directors of noncompliant companies.

We've highlighted a few of the largest and most significant penalties handed out in recent times by the US authorities and what lessons other firms can take from them. 

Seagate: A $300m violation

One of the largest financial penalties was handed out by the US  Bureau of Industry and Security (BIS) to technology manufacturer Seagate in 2023. It imposed a fine of $300 million on the company for violations of export control laws related to shipments of computer hard disk drives. Specifically, the US government accused Seagate of selling more than 7.4 million devices to Chinese firm Huawei, despite knowing that the company was subject to sanctions.

Assistant Secretary for Export Enforcement Matthew Axelrod commented: "Even after Huawei was placed on the Entity List for conduct inimical to our national security, and its competitors had stopped selling to them due to our foreign direct product rule, Seagate continued sending hard disk drives to Huawei.”

BAT: Criminal and civil penalties

Also in 2023, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a $508 million settlement agreement with British American Tobacco (BAT) for violating sanctions against North Korea. This included both the export of tobacco products to the country via its Singapore embassy and breaching anti-money laundering rules through the use of a variety fo foreign banks and intermediaries to obscure payments for the products.

Undersecretary of the Treasury for terrorism and financial intelligence Brian Nelson said at the time: “Companies that seek to profit from circumventing sanctions by obscuring their involvement will be discovered and will pay a price ... Firms that deal with blocked persons, even indirectly, will be penalized when their schemes implicate the US financial system.”

Microsoft, TE and more: Governments get tough on sanctions evasion

While the two above cases saw settlements reach into hundreds of millions of dollars, there are many more examples of multi-million dollar fines being imposed by customs authorities around the world, affecting companies of all sizes and across every sector.

For example, Microsoft, one of the world's largest brands, received a $3.3 million civil penalty from BIS and OFAC in 2023 for violating US export controls imposed on Russia as a result of the war with Ukraine, illustrating the need to keep up-to-date with sanctions lists.

Elsewhere, in 2024, Pennsylvania-based firm TE Connectivity Corporation picked up a $5.8 million fine for the shipment of "low level" items including  wires, printed circuit-board connectors, and pressure and temperature scanners to Chinese firms on the Entity List. This case emphasized that even relatively low-tech goods can be in violation of export control laws if they are deemed to be dual-use and serve a potential military purpose.