Mail-room mix-up: How 30¢ o-rings became a $90,000 fine

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Fifty synthetic rubber rings, worth about 30 cents a pop, ended up costing an Alberta company $90,000.

Lee Specialties Ltd., a manufacturer of oil field equipment, shipped rubber circles known as Viton o-rings along with other equipment, to Iran on Jan. 18, 2012. Authorities intercepted the cargo at the Calgary International Airport the next day.

The Viton o-rings, which are resistant to high temperatures and chemicals, can be used in nuclear programs and in the oil field, putting them on the list of commodities that Canada bars from being exported to Iran.

Lee Specialties, a private company based in Red Deer, Alta., pleaded guilty under the Special Economic Measures Act to shipping the banned rings and agreed to a $90,000 settlement in a Calgary court Monday.

The case demonstrates how Canadian authorities are increasingly pursuing companies committing economic crimes such as bribery outside Canada or in violation of international sanctions.

"In the past, we used to have [rules] on the books but it was rare for charges to be laid," said Riyaz Dattu, a partner at Osler Hoskin & Harcourt with expertise on economic sanctions and anti-bribery issues. "We see this as being a continuing trend in Canada."

The shipment was, essentially, a mail-room mix-up, according to court documents.

Lee Specialties received an order from Kan Dana Middle East LLC for $6,054.50 worth of fittings, couplers and o-rings, on July 5, 2011, according to the agreed statement of facts presented in court. The original order had the account address in Iran, but the shipping address in the United Arab Emirates.

The account and shipping addresses were changed five times as Lee Specialties went back and forth with Kan Dana over the details of the shipment and payment. The "last version of acknowledgment" listed an address in Dubai for both the account address and shipping address, the agreed statement of facts says.

But the cargo, including the $15 worth of Viton o-rings, was instead sent to an address in Tehran via shipping company DHL. Officers with the Canada Border Service Agency seized the shipment at the airport, and notified the RCMP.

Judge Allan Fradsham called the $90,000 "perfectly appropriate" given the circumstances. "It was a low amount of money and it seems like an innocent thing," he said, approving the settlement.

Steven Van Tetering, Lee Specialties' chief operating officer, declined to comment after the decision.

Kristine Robidoux, a partner at Gowling Lafleur Henderson LLP in Calgary, argued that Lee Specialties is unlikely to break the law again. "The risk of this company re-offending is very low," she said in court.

This is the first time charges have been laid under Canada's Special Economic Measures Act and the third time United Nations Act charges have been laid in Canada, the RCMP said. Both pieces of legislation address trade with countries that are considered potential threats to international peace.

These types of cases can take a long time to prosecute. In the case of Lee Specialties, the CBSA and RCMP executed three search warrants in February, 2013, the Mounties said.

Charges were laid Feb. 27, 2014, under the under the Special Economic Measures Act, the Customs Act and the United Nations Act. All but the charge under the Special Economic Measures Act have been dropped.

Viton is a brand of synthetic rubber and fluoropolymer elastomer used in o-rings and other goods because it has "high temperature and chemical resistance characteristics," the RCMP said. "Due to Viton's characteristics, it is a dual-use item and can be used in numerous applications including in the oil field or in the nuclear program."