June 12th, 2012

Foreign subsidiaries are not immune to export requirements

Sometimes a foreign subsidiary might think it can play games and avoid US export requirements. It turns out this can be a very costly mistake, as the US government will not let that slide, as Ericsson found out.

Ericsson of Panama was trying to do business with Cuba, which of course is a country under embargo by the United States. Ericsson of Panama needed parts from Ericsson Inc. in the United States, to service its contract with Cuba. So, it doctored documents in order to convince Ericsson Inc. to ship the parts for use by Cuba.

In other words, even though Ericsson of Panama was not subject to US requirements, by dealing with the US firm, the Panama firm caused the US firm to violate the export regulations, which is itself a violation.

This cost Ericsson of Panama a civil penalty of $1,753,000. A costly mistake indeed.