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

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/