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Company Without Sanctions Compliance Program Penalized for Unlicensed Exports

Monday, May 11, 2020
Sandler, Travis & Rosenberg Trade Report

The Office of Foreign Assets Control reports that a U.S. company has agreed to pay $257,862 to settle its potential civil liability for coordinating sales of agricultural commodities produced outside the U.S. to a company in Cuba without OFAC authorization. OFAC states that this case shows the importance of U.S. companies with a global presence maintaining appropriate sanctions compliance programs, particularly when dealing with foreign subsidiaries and affiliates. It also highlights how U.S. companies can benefit from seeking appropriate advice and guidance when contemplating business involving U.S. sanctions programs rather than developing alternative methods through non-U.S. companies to avoid prohibitions on U.S. companies.

According to OFAC, the company at issue believed it could not directly export its agricultural products to Cuba and therefore developed a transaction structure that it incorrectly determined would be consistent with U.S. sanctions requirements. Under this structure, the company processed purchase orders from a Cuban firm on behalf of the company’s foreign affiliates that would then fulfill the orders. The company coordinated and received commissions on these sales, resulting in 44 apparent violations of the Cuban Assets Control Regulations with a transactional value of $17.4 million.

The company could potentially have availed itself of an existing general license under the CACR, OFAC states, or applied for a specific license if the exports had been consistent with the Export Administration Regulations. However, the company failed to seek appropriate advice or otherwise take the steps necessary to authorize these transactions. In addition, the company did not have an OFAC compliance program in place.

OFAC notes that the statutory maximum civil monetary penalty applicable in this matter is $2.15 million. However, the company voluntarily self-disclosed the apparent violations, which constitute a non-egregious case. Other mitigating factors include that the company (1) engaged with outside counsel and export control consultants to conduct comprehensive training sessions for logistics, compliance, and senior management on country-specific embargoes, denied persons screening, and export license requirements and (2) developed formal written policies and procedures to prevent sales to or for unauthorized destinations, parties, or activities.

On the other hand, OFAC pointed out that (1) the company was reckless in its actions to develop, direct, and execute a transaction structure to export its products to Cuba, (2) company management was aware of and involved in the development and execution of this transaction structure, and (3) the company and its owned or controlled foreign entities are actively managed divisions of a commercially sophisticated, international company.

Clients and potential clients requiring support related to sanctions compliance should contact export attorney Kristine Pirnia. Click here to register for ST&R’s upcoming webinar on OFAC regulations and other export control basics.

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