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Use Due Diligence, Avoid Unorthodox Business Practices to Prevent Sanctions Violations, OFAC Says

Monday, April 29, 2019
Sandler, Travis & Rosenberg Trade Report

Following a recent enforcement action the Office of Foreign Assets Control is encouraging companies to exercise enhanced due diligence in business relationships with entities subject to the sectoral sanctions identification list and to avoid the use of unorthodox business practices such as the amendment or alteration of trade documents or the resubmission of payment information without a sanctions-related term, phrase, or location.

OFAC also states that the development and implementation of a risk-based sanctions compliance program can give companies the ability to assess prospective and real-time transactions for potential prohibitions and violations. To be effective such programs should include policies, procedures, and controls capable of identifying at-risk transactions and customers or counter-parties for review; the escalation of such matters to a sanctions compliance officer or point-of-contact for proper analysis; an ability to respond and react to warning signs regarding potential violations, including transactions blocked or rejected by financial institutions in accordance with OFAC’s regulations; and an adequate training program.

In the case at issue a U.S. company dealt in new debt of greater than 90 days maturity of a Russian entity identified on the SSI list. The company’s original invoices for the licensing of software and purchase of software support services specified payment due dates of between 30 and 70 days, but the Russian entity did not attempt payment until approximately nine months later, at which point the payment attempts were rejected by financial institutions.

OFAC notes that at the time of the payment attempts the U.S. company did not have a sanctions compliance program or recognize that the delayed collection of payment was prohibited. Instead of approaching OFAC for guidance or authorization, the company explored various options to collect the payment, including re-issuing and re-dating the invoice.

The statutory maximum civil monetary penalty amount for the apparent violations was $590,282 and the base penalty amount was $125,000. The U.S. company ultimately agreed to pay $75,375.

Among the aggravating factors cited by OFAC are that the U.S. company repeatedly ignored warning signs that its conduct likely constituted a violation and that its management team had actual knowledge of that conduct. On the other hand, OFAC states that it would have likely authorized the transactions had the company requested a license to receive the payments. Other mitigating factors include that the company has no other penalties from OFAC in the last five years, is a small company with a limited number of employees, and engaged in remedial efforts that included the creation of a sanctions compliance officer position and implementation of a risk-based compliance program with screening designed to review all current and future clients for OFAC purposes.

In addition, the company has committed to enhancing its compliance procedures by ensuring it has a management team in place that is committed to a culture of compliance, conducts regular risk assessments to ensure that its internal controls appropriately mitigate its sanctions-related risks, and provides ongoing sanctions compliance training throughout the organization.

For more information on U.S. sanctions and other export compliance issues, please contact trade attorney Kristine Pirnia at (202) 730-4964.

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