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$2.7 Million Penalty for Accepting Payment from Blocked Company

Monday, October 07, 2019
Sandler, Travis & Rosenberg Trade Report

The Office of Foreign Assets Control reports that a U.S. company, on behalf of three current and former subsidiaries, has agreed to pay $2.7 million to settle its potential civil liability for 289 alleged violations of the Cuban Assets Control Regulations. OFAC states that this enforcement action highlights (a) the sanctions risks associated with accepting payments from third parties and conducting transactions in foreign currency or at a foreign financial institution and (b) the importance of conducting appropriate due diligence on customers and other counter-parties when initiating and renewing customer relationships.

OFAC states that the three companies accepted 289 checks totaling approximately $8.0 million for goods and services provided to a Canadian customer from a company that (a) is owned by a public joint venture between the Canadian customer and the Cuban government and (b) has been identified as a specially designated national of Cuba and appeared on OFAC’s list of specially designated nationals and blocked persons. In addition, publicly available information demonstrated that the Canadian customer has strong historic and then-current economic ties to the Cuban mining industry through its business partnerships and joint ventures with the Cuban government. OFAC notes that despite the obvious sanctions risk posed by their relationship with the Canadian customer the three companies maintained and renewed that relationship at least 18 times.

The statutory maximum civil monetary penalty applicable in this matter is $18.79 million and the base penalty amount is $3.38 million. Aggravating factors included the following: (1) the companies failed to take proper or reasonable care with respect to their U.S. economic sanctions obligations, particularly given their commercial sophistication, (2) the companies’ actions caused substantial harm to the objectives of the Cuba sanctions program by conducting a large volume of high-value transactions directly with a Cuban company on the SDN list over a period of many years, and (3) the substance of the companies’ disclosures and other communications with OFAC leaves substantial uncertainty about the totality of the benefits conferred to the Cuban company.

On the other hand, OFAC determined the following to be mitigating factors: (1) none of the three companies has received an OFAC penalty notice or violation in the previous five years, (2) the alleged violations were identified by testing and auditing a compliance program, and (3) the parent company implemented remedial measures and new processes to enhance sanctions compliance procedures.

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