OFAC focus on non-financial institutions grows – Key takeaways from recent enforcements

Published on July 21, 2020 by Ganesh Hebbar

The Office of Foreign Assets Control (OFAC), a division under the Department of Treasury (DoT) is the prime agency for enforcing unilateral sanctions based on powers of the US presidency. The OFAC has a long history of sanctions enforcement – from its inception during the Korean War of 1950 to date. It has evolved over time; this blog summarises its recent sanctions and key takeaways for companies to comply with them.

Types of sanctions imposed by the OFAC:

• Primary/comprehensive sanctions: Prohibits citizens and companies of the sanctioning country from engaging with their counterparts in the sanctioned country

• Secondary/supplementary sanctions: Halts activity with the sanctioned country by threatening to sever its access to the US market

• Sectoral/targeted sanctions: Prohibits citizens and companies of the sanctioning country from engaging with people and companies in sector-specific transactions

The OFAC has accrued c.USD9.20m through civil penalties for violations from four companies so far in 2020. Trends are changing, and its focus is now on non-financial sectors, due to their lack of understanding of sanctions.

Emerging trends from 2020 OFAC settlements:

Summary of settlements:

• Settlement 1: Société Internationale de Télécommunications Aéronautiques SCRL (SITA)

  • Provided multiple communication software services to Iranian, Iraqi and Syrian private airlines, violating Global Terrorism Sanctions Regulations (GTSR)

  • Took a reactive approach and knowingly violated sanctions by curtailing access only to selected software related to fields such as ticketing, airfare, and e-commerce, and continuing to provide software related to areas such as baggage management and messaging services after sanctions designations

  • The OFAC identified violations as the sanction-designated entities were identified as SITA’s member owners and services were offered from, or transited through, the group’s US companies

• Settlement 2: Eagle Shipping International USA LLC (Eagle Shipping)

  • Involved in shipping sea sand from Burma between the consignee and the consignor, where the consignor was sanctioned under Burmese sanctions regime

  • Applied for an OFAC licence for the first time and shipped goods before the OFAC’s response and continued to engage with the seller after the OFAC denied the licence

  • The OFAC identified violations through the company’s self-disclosure after it was taken over by the new owners

• Settlement 3: Park Strategies, LLC (Park Strategies)

  • Entered into a contract with a Somalian company to engage in lobbying activity in relation to real estate deals with various divisions of the US government, violating GTSR

  • The OFAC identified violations through the company’s self-disclosure, and the company blocked the first payment of the contract as soon as it had realised the breach

• Settlement 4: BIOMIN America, Inc. (BIOMIN)

  • Was engaged in the sale of agricultural commodities produced outside the US to a Cuban company without authorisation from the OFAC, violating Cuban Assets Control Regulations (CACR)

  • Developed a transaction structure that it incorrectly determined would be consistent with US sanctions

  • During the time when the apparent violations occurred, BIOMIN did not have an OFAC-compliant programme in place; it later made a self-disclosure of the violation

Takeaways:

• Secondary sanctions are applicable not only to companies in the home country but also to companies that leverage a global network of offices to deliver their services

• To transact under sanctions regimes, a company could obtain a general licence or a specific one from the OFAC

• Sanctions could be enforced even though the original executive order is no longer effective

• Sanctions regimes cover vast areas and could relate to transactions where a company acts as a third party to buy/sell goods or services

• It is important to conduct a fool-proof due diligence review and audit, both before and after an acquisition

• Self-disclosure is a good thing and leads only to nominal fines, with minimal business impact. Companies should also constantly and closely watch for the following:

  • Changes to the sanctions programme and their applicability over time

  • Exemptions available under each sanction designation

  • History of case-by-case approval of licences by sanctioning bodies to deal with sanctioned parties

How Acuity Knowledge Partners can help:

We are equipped to assist companies to identify and deal with an offense/sanction nexus in their customer bases, supplier lists, projects, or transactions through the following:

• Extensive sanctions due diligence, remedial proposals and accurate sanction reporting on companies/groups of companies

• Expert advice from a team of sanction compliance specialists on deals, projects, mergers and other such activity

• Training and development programmes to up-skill compliance teams to deal with real-time sanction risks

Source

https://www.treasury.gov/

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