UPDATE 1-Dubai firm fined $2.8 million for shipping Blue Coat monitoring gear to Syria
* Sold U.S. devices to monitor Internet-U.S. Dept of Commerce
* Computerlinks FZCO fined maximum penalty allowed
* Company agrees to submit to independent audits
By Steve Stecklow
LONDON, April 25 (Reuters) - A Dubai distribution company has agreed to pay a $2.8 million civil penalty for shipping embargoed U.S. devices to the Syrian government to monitor and control internet traffic, according to U.S. Department of Commerce documents seen by Reuters.
The U.S. has had a long-standing trade embargo against Syria, which is in the midst of a bloody uprising, and uproar ensued when it first emerged in 2011 that the country was using U.S. technology to monitor its own citizens.
The Department of Commerce settlement documents provide new details on the alleged role of Middle Eastern reseller Computerlinks FZCO in delivering and servicing the equipment.
Computerlinks FZCO sold $1.4 million worth of devices made by Blue Coat Systems Inc, of Sunnyvale, California, to the Syrian government in three separate transactions between about October 2010 and May 2011, the documents state.
The agreement said that the distributor falsely claimed to Blue Coat that the products were being shipped to Iraq and Afghanistan.
The settlement was signed on Wednesday by two Computerlinks FZCO executives, an attorney and the Commerce Department's director of export enforcement.
Computerlinks FZCO, an authorised Middle East distributor for Blue Coat at the time of the sale, also agreed to submit to independent, third-party audits. The penalty was the maximum fine allowed.
A spokesman for Computerlinks AG in Munich, Germany, the parent company of Computerlinks FZCO, said in a statement: "The company is happy to have the matter resolved ... and is moving forward with its business."
The company added that under the terms of the agreement it neither admits nor denies the allegations in the settlement.
Ernst Stephan Link, who signed the settlement agreement and is the founder and chief executive of Computerlinks AG, emailed that he was in a meeting and could not comment.
In a statement, David Murphy, Blue Coat's president and chief operating officer, commended the Commerce Department "for pursuing and penalizing the third parties responsible for the unlawful transfer of our products to Syria without our knowledge.
"We take care to ensure that our products are sold in accordance with laws that prohibit the sale of our technology for certain end uses and to certain destinations and end users," it said.
The documents state that the end user of the Blue Coat equipment was the state-run Syrian Telecommunications Establishment, which controls the country's access to the Internet.
According to the documents, Computerlinks FZCO not only illegally shipped U.S. hardware and software to Syria, but also provided support "to help the end user of the devices to monitor the Web activities of individual internet users and prevent users from navigating around censorship controls".
Investigators have not seen any evidence that Blue Coat, which cooperated with the probe, was aware that its products were being shipped by Syria, a person familiar with the Commerce Department's investigation said.
Syria was one of numerous countries in the Middle East and North Africa that employed western technology to monitor and crack down on dissidents during the Arab Spring uprisings. Many bloggers and other internet users were arrested, jailed and sometimes beaten.
Syria's use of the internet-monitoring equipment first surfaced in August 2011 after a "hacktivist" group called Telecomix gained access to computer servers in Syria and found that Blue Coat devices were being used to censor Web pages. The group later released computer logs detailing the pages being blocked.
The person familiar with the probe said that investigators were able to use the logs to determine the serial numbers of the Blue Coat equipment and to track its sale.
The settlement documents say that Syrian authorities were also using the equipment to track individuals as they surfed the Internet.
They also state that a number of Computerlinks FZCO employees were aware that the Blue Coat products were destined for Syria.
"From February through May 2011, email exchanges involving several Computerlinks FZCO employees, including its managing director and finance manager, occurred with the UAE reseller concerning past due balance amounts, which eventually were paid via a wire transfer from Syria on May 12, 2011," the documents state. The employees are not named.
In late 2011, Blue Coat disclosed in a filing with the U.S. Securities and Exchange Commission that it had ended its distribution agreement with "a Middle Eastern affiliate of one of our channel partners" after determining that some of its products had been diverted to Syria. Blue Coat did not name the affiliate.
The settlement marks the second public action in the Commerce Department's investigation of the sale of Blue Coat equipment to Syria. In December 2011, the department placed export restrictions on a UAE company and individual for ordering the devices from the reseller.
The source familiar with the probe said that the investigation by the Commerce Department's Office of Export Enforcement is continuing and charges against other companies are possible.
"Today's settlement reflects the serious consequences that result when companies evade U.S. export controls," Eric L. Hirschhorn, the Under Secretary for Industry and Security, said in a prepared statement.
"It is vital that we keep technology that can repress the Syrian people out of the hands of the Syrian government."
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