In the corporate sector, executives do not remain unscathed after sanctions violations

Date: September 6, 2016
By: Daniel Calloway,

In September of 2015, ex-CEO of Arc Electronics Inc., Alexander Fishenko, plead guilty to a 19 count indictment which included charges of the illegal export of microelectronics, money laundering, wire fraud, obstruction of justice, and acting as an unregistered agent of the Russian government. Unlike many cases in the banking sector, where no executives have been accused of wrongdoing after violation of US sanctions laws, Mr. Fishenko, on July 21, 2016, was sentenced by a New York federal judge to 10 years in prison for his crimes.

According to prosecutors, Fishenko, a dual Russian and US citizen, along with 10 other defendants, led a complex procurement network to funnel US products to Russian entities, including the Russian military. Specifically, the investigation revealed that Houston-based Arc Electronics Inc. defrauded a multitude of corporations, including Toshiba Corp. and Texas Instruments Inc., into selling cutting edge military technologies through a culture of deceit and manipulation. These items are subject to controls to prevent the risks that they may pose for international security. The prosecutors said that the defendants (1) lied to suppliers that Arc Electronics was a traffic light manufacturer in need of sensitive electronic components; (2) trained employees to lie to suppliers about the ultimate end users for the products purchased; (3) falsified export records; and (4) purposefully not registered with the Department of Commerce or the Department of State.

Prosecutors argued that the operation resulted in the Russian military substantially advancing their technological capability, which was over 10 years behind the United States. One of their strongest assertions is that the Russian military is now in possession of a sophisticated radar technology that enables their fighter jets to aim its weapons at multiple targets. The sentencing judge, US District Court Judge Sterling Johnson, seemed to warn of the rippling effects of the crimes when he said, “Whether intentionally or unintentional, some of these sophisticated components did end up with the Russian Military…God Knows what kind of impact that will have, either for our future or their future.”

This case is a textbook example of sanctions controls evasion and the potentially devastating consequences for the perpetrator, aligned cohorts, and associated corporation. Here, Mr. Fishenko engaged in unethical and unlawful commerce practices, trained his employees and partners to be complicit or facilitate the crimes, and used his company Arc Electronics Inc. as the ultimate vehicle for the entire operation. His defense centered on the argument that he had a lack of expertise in dealing with export laws, and as such, did not intentionally violate sanctions laws. He further argued that he had a deep affection for the United States and certainly was “not a spy”.

The court found him to be in violation of the International Emergency Economic Powers Act and the Arms Export Control Act, among others. Ultimately, Judge Sterling Johnson determined that intentional or not Mr. Fishenko’s actions led to a “sophisticated effort to assist Russia’s militarization efforts.”  Mr. Fishenko was sentenced to 10 years and fined over $500,000. Four other defendants plead guilty and another three former employees of Arc Electronics were convicted last year after trial. The deceived US companies were not charged with any crimes.



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