Export laws: avoid the Scarlett letter.

• Author: Shaheen, Fred
• Position: ETHICS CORNER

Complex U.S. export control laws and regulations are here to stay. The federal government is serious about export control enforcement, and violators are being severely punished.

Apart from the fines and suspension issues, as serious as those are, is the importance of protecting a company's reputation. Like Hester Prynne, the violator's scarlet "V," once adorned, is difficult to remove.

The U.S. attorney general in June announced a national export enforcement initiative to better identify, investigate and prosecute individual and corporate violators of U.S. export control laws. On Oct. 16, the president signed into law the International Emergency Economic Powers Enhancement Act, which increased civil and criminal penalties for violations of U.S. export control and economic sanctions regulations.

To further punish and deter violations, the government generally publicizes each settlement, plea or conviction in export control enforcement cases. Then follows the legal and regulatory pundits who, if the fine is sufficiently severe, will rehash the facts. The impact on existing and future business, especially for publicly traded companies or for companies seeking prime or a first- or second-tier contract, can be crushing.

Perhaps the tip of the iceberg was the congressional scrutiny of General Hectric and Halliburton, each alleged to have ties with or derived profits from business with countries deemed to be state sponsors of terrorism. In both instances, the controversy surrounded Iran-based subsidiary activities. The legality of the alleged activities notwithstanding, the public flogging was merciless. For example, even the New York City comptroller, acting for the New York City Police and Fire Department Pension Funds, publicly called for reviews of GE, Halliburton, and ConocoPhillips in early 2003 because the pension funds held significant investments in the three companies.

There is also the infamous ITT Corp.'s plea to having willfully violated the Arms Export Control Act. The case was highly publicized and the long-term impact from a public relations standpoint remains to be seen. For instance, a July 2007 Reuters article, "Update 1--ITT Corp. profit up on defense, water gear," shows how these stories still haunt the company. Although the Reuters article heralded a rise in ITT's second-quarter profits, it ended on this negative reminder: "Earlier this...