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Inadequate Compliance Efforts Yield Sanctions Violations, $7.77 Million Penalty

Wednesday, January 02, 2019
Sandler, Travis & Rosenberg Trade Report

A holding company headquartered in the U.S. has agreed to pay $7.77 million to settle its potential civil liability for 26 apparent violations of the Belarus Sanctions Regulations. According to the Treasury Department’s Office of Foreign Assets Control, this enforcement action highlights the risks for companies with overseas operations that do not implement OFAC compliance programs or that implement compliance programs that fail to address OFAC-administered sanctions regulations. OFAC states that effective sanctions compliance programs have policies, procedures, and controls designed to identify prospective and in-process transactions, as well as customers and counter-parties, for potential OFAC issues, as well as mechanisms designed to adequately respond to warning signs and raise sanctions-related issues to a sanctions compliance officer or point of contact.

Additionally, OFAC states, this case highlights the need for U.S. parent companies to take care to segregate certain business operations of their overseas subsidiaries so that the U.S. parent and its employees do not violate U.S. sanctions regulations by facilitating the actions of its subsidiaries.

According to OFAC, for a number of years the foreign subsidiary of the U.S. company at issue purchased acrylonitrile, a chemical used in the production of carbon fiber, from a Belarusian entity identified on OFAC’s List of Specially Designated Nationals and Blocked Persons. Throughout this period, purchase decisions made by the subsidiary were reviewed and approved by senior-level executives of the parent company in the U.S., even when they knew of the seller’s status as an OFAC-sanctioned party.

The statutory maximum civil monetary penalty amount for the apparent violations was $37.8 million and the base penalty amount was $12.0 million.

OFAC considered the following to be aggravating factors.

- The company acted with reckless disregard for U.S. economic sanctions requirements and/or failed to exercise a minimal degree of caution or care in avoiding the conduct that led to the apparent violations and failed to incorporate OFAC compliance checks in its overall risk mitigation strategy.

- Multiple parent company personnel, including senior and executive-level managers, as well as individuals from the subsidiary, were aware of and participated in the conduct that led to the apparent violations.

- The parent company approved the subsidiary’s purchase of a significant volume of ACN from the sanctioned party for several years, resulting in significant harm to the sanctions program objectives of the BSR and conferring more than $18 million to a Belarusian government entity.

- The companies at issue are large entities that engage in a significant volume of international trade and cross-border transactions.

- Senior parent company personnel, including executive-level managers, actively discussed U.S. sanctions issues related to the sanctioned party raised by third parties but did not review the company’s U.S. legal obligations and continued to approve transactions with the sanctioned party.

On the other hand, OFAC considered the following to be mitigating factors.

- Neither the parent company nor its subsidiary have received a penalty notice or finding of violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the apparent violations.

- Both companies cooperated with OFAC’s investigation, including by voluntarily self-disclosing the apparent violations and providing detailed and well-organized information for OFAC’s review.

- The parent company and its U.S.-based subsidiary confirmed that they have terminated the conduct that led to the apparent violations and taken the following steps to minimize the risk of recurrence of similar conduct in the future: (1) expanded the director of global compliance position to include U.S. sanctions issues, (2) implemented the use of sanctions software to screen vendors and their parent and subsidiary companies against government restricted lists on a daily basis, and (3) created a “learning academy” to train all new and current employees on U.S. economic sanctions and adherence to U.S. export controls.

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