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$2 Million Penalty for Sanctions Violations Protested as “Unfair”

Friday, July 21, 2017
Sandler, Travis & Rosenberg Trade Report

A U.S. company is protesting as “fundamentally unfair” a $2 million civil penalty imposed by the Office of Foreign Assets Control for violations of the Ukraine-Related Sanctions Regulations. The company believes its actions were in keeping with guidance from federal officials but OFAC said regulations issued after that guidance made clear that those actions were prohibited.

An OFAC press release states that in May 2014 the presidents of the company’s U.S. subsidiaries signed eight legal documents related to oil and gas projects in Russia with the head of a Russian oil company. That individual (but not the oil company) had been added to OFAC’s list of specially designated nationals and blocked persons pursuant to a March 2014 executive order blocking the property of persons contributing to the situation in Ukraine.

In a statement the company asserted that it “followed the clear guidance from the White House and Treasury Department” when its representatives signed documents involving ongoing oil and gas activities in Russia with a non-blocked entity that were countersigned by the SDN in his official representative capacity. The company said this guidance was subsequently confirmed by a Treasury Department spokesperson who said, by way of example, that another company’s CEO was permitted to participate in meetings of the oil company’s board that included the SDN so long as the activity related to that company’s business and not the SDN’s personal business.

OFAC responded that the plain language of the URSR (which were issued after the guidance) and the underlying executive order does not contain such a distinction between the SDN’s professional and personal capacity and that OFAC has neither interpreted its regulations in that manner nor endorsed such a distinction. OFAC also pointed out that at the time of the violations there was information on its website clearly indicating that in another sanctions program also involving SDNs the agency viewed the signing of a contract with an SDN as prohibited, even if the entity on whose behalf the SDN signed was not sanctioned. However, the company charged OFAC with “trying to retroactively enforce a new interpretation of an executive order that is inconsistent with the explicit and unambiguous guidance from the White House and Treasury issued before the relevant conduct."

OFAC states that in determining the amount of the civil penalty it considered the following to be aggravating factors: (1) the company demonstrated reckless disregard for U.S. sanctions requirements when it failed to consider warning signs associated with dealing in the blocked services of an SDN, (2) the company’s senior-most executives knew of the individual’s status as an SDN when they dealt in the blocked services, (3) the company caused significant harm to the objectives of the Ukraine-related sanctions, and (4) the company is a sophisticated and experienced company that has global operations and routinely deals in goods, services, and technology subject to U.S economic sanctions and export controls. The only mitigating factor was that the company has not received a penalty notice or finding of violation from OFAC in the five years preceding the date of the first transaction giving rise to the violations.

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