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Penalty Shows Importance of Empowering Compliance Personnel, OFAC Says

Monday, June 11, 2018
Sandler, Travis & Rosenberg Trade Report

A new penalty action from the Office of Foreign Assets Control highlights the importance of empowering compliance personnel to prevent transactions prohibited by U.S. economic and trade sanctions. OFAC states that entities should ensure their sanctions compliance teams are adequately staffed, receive sufficient technology and other resources, and are delegated appropriate authority to ensure compliance efforts meet an entity’s risk profile. Such personnel should also be equipped with the tools necessary to review, assess, and proactively address sanctions-related issues that arise with ongoing or prospective transactions, customers, or counter-parties.

OFAC states that in the case at issue, two subsidiaries of a multinational company decided to solve a technical problem with equipment in Sudan by purchasing an export controlled U.S.-origin product. After the parent company’s compliance department said such a shipment would violate the company’s internal policy regarding sanctions compliance, the subsidiaries structured the purchase into a multistage transaction that involved transshipping the product through Switzerland and Lebanon and ultimately to Sudan.

The statutory maximum civil monetary penalty amount for the apparent violation of the Sudan Sanctions Regulations was $360,230 and the base civil monetary penalty amount was $180,115. The entities ultimately agreed to pay $145,893.

(OFAC notes that while transactions previously prohibited by the SSR are no longer prohibited as of Oct. 12, 2017, this change does not affect past, present, or future OFAC enforcement investigations or actions related to any apparent violations relating to activities that occurred prior to that date.)

The following factors were considered to be aggravating: (1) several subsidiary employees willfully violated the SSR by forming a conspiracy with the employees of a third-country company with the specific purpose of evading the U.S. embargo on Sudan, (2) at least one of the employees involved was a manager; (3) the employees ignored warnings from the parent company’s compliance department that the transaction at issue was prohibited; (4) the subsidiary’s actions caused harm to the sanctions program objectives with respect to Sudan; and (5) the parent company is a large and commercially sophisticated entity.

On the other hand, the following factors were considered to be mitigating: (1) the parent company cooperated with OFAC by filing a voluntary self-disclosure, performing a thorough internal investigation, and signing a tolling agreement; (2) neither the parent company nor the subsidiaries have received a penalty notice or finding of violation from OFAC in the five years preceding the date of the transaction giving rise to the apparent violation; (3) the parent company’s remedial response to the apparent violation and adoption of additional compliance controls and procedures; and (4) the low likelihood of recurrence given the individual characteristics of the apparent violation.

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