In recent years, Singapore has become a significant hub for international commerce. According to the U.S. International Trade Administration, the U.S. was Singapore's fourth largest source of imports in 2021 and the primary choice for technology firm regional headquarters.1 In addition, Singapore's economy relies heavily on "transshipment and its status as a business hub."2 As such, Singapore serves as a focal point for international trade, and as two recent U.S. government actions suggest, a possible new focus for trade-related enforcement.
DOJ and OFAC Settle with British American Tobacco for $629 Million for Bank Fraud and Sanctions Violations
On April 25, 2023, the U.S. Department of Justice ("DOJ") issued a press release announcing that British American Tobacco ("BAT") and its subsidiary, BAT Marketing Singapore ("BATMS"), agreed to pay $629 million in penalties for bank fraud and violations of U.S. sanctions on North Korea. Assistant Attorney General for the DOJ's National Security Division Matthew Olsen stated that this enforcement action involved the "largest North Korean sanctions penalty in the history of the Justice Department." According to the press release, BAT and BATMS used a third-party company located in Singapore to sell tobacco to North Korean entities in violation of U.S. sanctions. U.S. banks processed the transactions, but the identities of the North Korean purchasers were kept hidden via the use of front companies.
The Department of the Treasury Office of Foreign Assets Control ("OFAC") acted concurrently with the DOJ in this matter. The related OFAC press release, also issued on April 25, provides a list of aggravating factors that contributed to the significant penalty amount. These factors included the fact that the violations contributed to North Korean cigarette manufacturing, which is a sector known to net over $1 billion per year for the North Korean government. Another aggravating factor was BAT management's actual knowledge of the conspiracy between BATMS, the third-party Singaporean company, and North Korean purchasers to engage in the illicit trade of tobacco.
BIS Imposes $300 Million Penalty Against Seagate Technology
A few days prior to the DOJ and OFAC announcements above, the Department of Commerce Bureau of Industry and Security ("BIS") announced on April 19 the imposition of the largest standalone administrative penalty in BIS history. The $300 million-dollar civil penalty was issued against Seagate Technology LLC, based in California, and Seagate Singapore International Headquarters Pte. Ltd., located in Singapore (collectively "Seagate"). According to the BIS press release, Seagate caused the reexport, export from abroad, or transfer of restricted hard disk drives to Huawei Technologies Co. Ltd. ("Huawei") in violation of the foreign direct product ("FDP") rule applicable to companies on BIS's Entity List. The FDP rule restricts the shipment of foreign-produced items to Huawei, a company added to the Entity List in 2019, if the items were produced outside of the U.S. via the use of U.S. technology or software.
The BIS Order states that Seagate "incorrectly interpreted" the FDP rule to only apply to the final stages of its manufacturing processes rather than all stages. Seagate continuously supplied Huawei with the hard disk drives produced using U.S. technology and software even after its competitors ceased doing business with Huawei after the FDP rule was implemented in 2020. Assistant Secretary for Export Enforcement Matthew Axelrod called the BIS action against Seagate a "clarion call" for companies to steadfastly comply with export controls. In addition, Director of the Office of Export Enforcement John Sonderman issued words of warning for those engaged in the export of products to an entity subject to FDP rule restrictions, stating that a company should "evaluate its entire manufacturing process" to ensure that specified U.S. technology or software is not used in violation of an FDP rule.
Footnotes
1. Singapore-Country Commercial Guide, Trade.gov: Country Commercial Guides, https://www.trade.gov/country-commercial-guides/singapore-market-overview (last updated Aug. 11, 2022).
2. Id.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.