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    Feds investigate Portland’s Esco Corp. for violating U.S. embargo against Cuba

    Feds investigate Portland's Esco Corp. for violating U.S. embargo
    against Cuba

    Mar 16, 2012 (The Oregonian - McClatchy-Tribune Information Services via
    COMTEX) -- Federal officials are investigating Esco Corp. for using
    nickel obtained from Cuba in violation of a U.S. trade embargo, the
    Portland company confirmed Friday.

    Esco lawyers expect the company to face fines of no more than $5.5
    million, but acknowledge penalties could be more, according to a public
    filing with the U.S. Securities and Exchange Commission.

    The disclosure of the violation by a Canadian subsidiary comes at a
    delicate moment for Esco, an old-line manufacturer whose managers have
    been trying to take the company public on the Nasdaq exchange. Esco
    announced its plans in May for a $175 million public offering that has
    since languished.

    It's not clear whether the Cuban matter held up the offering or whether
    the soft market for IPOs is behind the delay.

    Esco spokeswoman Kelley Egre declined to comment Friday on the IPO or
    its timing, citing an SEC-imposed quiet period. But she did address the
    Cuban disclosure, contained in a 317-page amended IPO document filed by
    the company and appearing on the SEC's website late Friday.

    "Truly, we take compliance very seriously," Egre said, "and as soon as
    we found out, we immediately reported to the appropriate agencies."

    For 50 years, the United States has maintained an embargo that prohibits
    nearly all trade, financial and aid transactions with Cuba, 90 miles
    from Florida. The embargo is somewhat permeable, given dealings through
    third countries, but U.S. officials take violations seriously.

    The U.S. Treasury Department's Office of Foreign Assets Control
    investigates violations. That's the agency Esco managers say they
    alerted when they discovered the Cuban dealings in June.

    "We learned that a foundry operated by one of our foreign subsidiaries
    had been purchasing and using material from a distributor that obtained
    the material from a supplier that procured the source material from
    Cuba," the company wrote in its SEC filing.

    "We voluntarily reported the violation to OFAC, stopped purchasing from
    the distributor, temporarily halted production at the foundry and
    sequestered all inventory containing Cuban material," Esco said. "In
    July 2011, we resumed production at the foundry with material provided
    by another supplier and subsequently received a license to sell most of
    the inventory that contained Cuban material."

    The Treasury investigation continues, the company said, and could take
    many months to complete. Penalties can be significant, Esco said,
    because each purchase of Cuban material and each sale of a product
    containing the material could result in a fine of up to $65,000.
    Esco has four foundries in Canada, among about 30 plants worldwide. Cuba
    and Canada maintain thriving commercial and diplomatic relations.

    So a Canadian subsidiary of a U.S. company could easily do business with
    a Cuban supplier without perhaps realizing the ramifications.

    The Cuban connection could embarrass Esco, which makes parts such as
    teeth for gigantic mining shovels. But a $5.5 million fine would hardly
    set the company back.

    The SEC filing showed Esco's net sales jumped to $1.12 billion in 2011,
    up 32 percent from $850 million in 2010.

    Gross profit grew 34 percent, from $223 million in 2010 to $299 million
    last year.

    Esco reported that because of the improved economy and business
    expansion, the company increased its global workforce to 5,362 employees
    in 2011, up from about 4,600 in 2010.

    -- Richard Read, twitter.com/ReadOregonian

    http://www.menafn.com/qn_news_story.asp?storyid={255d45f4-767f-4f51-95ac-c7f6b62706d3}&src=main