Remedial Measures Help Mitigate Penalty for Sanctions Violations
The Office of Foreign Assets Control reports that a U.S. company, on behalf of a former subsidiary, has agreed to pay $87,507 to settle potential civil liability for three apparent violations of the Ukraine Related Sanctions Regulations. OFAC states that this case demonstrates the importance of companies operating in high-risk industries (i.e., defense) to implement effective, risk-based compliance measures, especially when engaging in transactions involving high-risk jurisdictions. Specifically, persons employing sanctions screening software should take steps to ensure it is sufficiently robust and appropriate personnel are trained on its functionality. Further, OFAC states, it is essential that companies engaging in international transactions maintain a culture of compliance where front line staff are encouraged to follow up on sanctions issues, including by promptly reporting to compliance personnel transactions suspected to involve sanctioned parties.
OFAC states that between July 31, 2014, and Jan. 15, 2015, the subsidiary sold switch limiters, switches, and silicon diode switch limiter samples through distributors in Canada and Russia to a person in Ukraine whose property and interests in property are blocked. While the recipient was not explicitly identified on the List of Specially Designated Nationals and Blocked Persons at certain times, it was 51 percent owned by a company that had been blocked and added to the SDN List. However, the company’s denied party screening and review by its director of global trade compliance failed to produce warnings for the recipient.
According to OFAC, the statutory maximum civil monetary penalty in this matter is $1.99 million and the base penalty amount for the apparent violations is $125,010. OFAC determined the following to be aggravating factors: (1) the subsidiary failed to recognize warning signs when exporting goods on multiple occasions through distributors to the subsidiary of a blocked person with nearly the same name as the blocked person; (2) the director of global trade compliance reviewed and approved the transactions; (3) the apparent violations conferred an economic benefit to a blocked person tied to Russia’s defense industry; (4) the subsidiary and its parent company are large and sophisticated entities operating in a sensitive industry; and (5) the parent company and its compliance personnel were involved in prior apparent violations of the Iranian Transactions and Sanctions Regulations and the subsidiary was subject to a consent agreement for violations of the International Traffic in Arms Regulations resulting from recurring compliance failures.
On the other hand, OFAC determined the following to be mitigating factors: (1) the subsidiary has not 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; (2) the parent company submitted a detailed disclosure and implemented certain remedial measures (e.g., implementing new sanctions screening software, acquiring a screening and business intelligence tool, and circulating a lessons learned bulletin to all U.S.-based international trade compliance personnel); and (3) the primary transaction underlying the apparent violations straddled changes in the URSR such that a portion of the transaction occurred prior to it being prohibited.