OFAC focus on Non-financial Institutions Grows — Key Takeaways from recent Enforcements

Acuity Knowledge Partners
4 min readOct 6, 2023

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The Office of Foreign Assets Control (OFAC), a division under the Department of Treasury (DoT) is the prime agency for enforcing unilateral sanctions based on powers of the US presidency. The OFAC has a long history of sanctions enforcement — from its inception during the Korean War of 1950 to date. It has evolved over time; this blog summarises its recent sanctions and key takeaways for companies to comply with them.

Types of sanctions imposed by the OFAC:

  • Primary/comprehensive sanctions: Prohibits citizens and companies of the sanctioning country from engaging with their counterparts in the sanctioned country
  • Secondary/supplementary sanctions: Halts activity with the sanctioned country by threatening to sever its access to the US market
  • Sectoral/targeted sanctions: Prohibits citizens and companies of the sanctioning country from engaging with people and companies in sector-specific transactions

The OFAC has accrued c.USD9.20m through civil penalties for violations from four companies so far in 2020. Trends are changing, and its focus is now on non-financial sectors, due to their lack of understanding of sanctions.

Emerging trends from 2020 OFAC settlements:

Summary of settlements:

  • Settlement 1: Société Internationale de Télécommunications Aéronautiques SCRL (SITA)
  • Provided multiple communication software services to Iranian, Iraqi and Syrian private airlines, violating Global Terrorism Sanctions Regulations (GTSR)
  • Took a reactive approach and knowingly violated sanctions by curtailing access only to selected software related to fields such as ticketing, airfare, and e-commerce, and continuing to provide software related to areas such as baggage management and messaging services after sanctions designations
  • The OFAC identified violations as the sanction-designated entities were identified as SITA’s member owners and services were offered from, or transited through, the group’s US companies
  • Settlement 2: Eagle Shipping International USA LLC (Eagle Shipping)
  • Involved in shipping sea sand from Burma between the consignee and the consignor, where the consignor was sanctioned under Burmese sanctions regime
  • Applied for an OFAC licence for the first time and shipped goods before the OFAC’s response and continued to engage with the seller after the OFAC denied the licence
  • The OFAC identified violations through the company’s self-disclosure after it was taken over by the new owners
  • Settlement 3: Park Strategies, LLC (Park Strategies)
  • Entered into a contract with a Somalian company to engage in lobbying activity in relation to real estate deals with various divisions of the US government, violating GTSR
  • The OFAC identified violations through the company’s self-disclosure, and the company blocked the first payment of the contract as soon as it had realised the breach
  • Settlement 4: BIOMIN America, Inc. (BIOMIN)
  • Was engaged in the sale of agricultural commodities produced outside the US to a Cuban company without authorisation from the OFAC, violating Cuban Assets Control Regulations (CACR)
  • Developed a transaction structure that it incorrectly determined would be consistent with US sanctions
  • During the time when the apparent violations occurred, BIOMIN did not have an OFAC-compliant programme in place; it later made a self-disclosure of the violation

Takeaways:

  • Secondary sanctions are applicable not only to companies in the home country but also to companies that leverage a global network of offices to deliver their services
  • To transact under sanctions regimes, a company could obtain a general licence or a specific one from the OFAC
  • Sanctions could be enforced even though the original executive order is no longer effective
  • Sanctions regimes cover vast areas and could relate to transactions where a company acts as a third party to buy/sell goods or services
  • It is important to conduct a fool-proof due diligence review and audit, both before and after an acquisition
  • Self-disclosure is a good thing and leads only to nominal fines, with minimal business impact. Companies should also constantly and closely watch for the following:
  • Changes to the sanctions programme and their applicability over time
  • Exemptions available under each sanction designation
  • History of case-by-case approval of licences by sanctioning bodies to deal with sanctioned parties

How Acuity Knowledge Partners can help:

We are equipped to assist companies to identify and deal with an offense/sanction nexus in their customer bases, supplier lists, projects, or transactions through the following:

  • Extensive sanctions due diligence, remedial proposals and accurate sanction reporting on companies/groups of companies
  • Expert advice from a team of sanction compliance specialists on deals, projects, mergers and other such activity
  • Training and development programmes to up-skill compliance teams to deal with real-time sanction risks

Orignal source : https://www.acuitykp.com/

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Acuity Knowledge Partners

We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://bit.ly/3NaJ4Et