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Treasury Department Levies Significant Penalty over Sanction Violations

Posted by AIAG on Aug 24, 2017 2:27:10 PM

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On July 20, 2017, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) penalized a U.S. gas and oil company $2 million for allegedly violating sanctions with Russia.

The action is the latest in a string of recent OFAC enforcements targeting non-financial institutions. In addition, the penalty confirms that OFAC, along with other U.S. regulators, continues to pursue companies that violate the letter or spirit of U.S. economic sanctions.

This particular penalty traces back to documents in May 2014, less than two months after OFAC introduced sanctions in response to Russia’s invasion of Ukraine. OFAC found the company’s conduct to violate the sanctions because the documents at issue were countersigned by the Russian company’s CEO, an oligarch who was personally on the Specially Designated Nationals and Blocked Persons List (SDN).

News sources have reported that the $2 million fine amounts to about 10 percent of a single day’s earning for the penalized company.

OFAC and the company are disagreeing over the scope of the sanctions — specifically, whether the sanctions pertain to the Russian oligarch exclusively in their personal capacity, or whether the sanctions also extend to their professional business interests. 

OFAC said in a statement that the language of the sanctions is clear and does not include a personal versus professional distinction. It said the company demonstrated disregard for U.S. sanctions and added that the company's top executives were aware of the Russian’s sanctioned status when they did business with them.

Citing an FAQ released in 2013, OFAC says “U.S. parties should be cautious in dealings with [a non-designated] entity to ensure that they are not providing funds, goods, or services to the SDN, for example, by entering into any contracts that are signed by the SDN.”

The July penalty is only the latest in a series of notable OFAC enforcement actions targeting non-financial institutions. In March 2017, OFAC penalized a Chinese telecommunications company over $100 million for alleged violations of the Iranian sanctions. When combined with criminal fines and forfeitures, the company faced a $1.19 billion penalty.

In another enforcement action, OFAC found a U.S.-based audio electronics company violated the Iranian Transactions and Sanctions Regulations by exporting audio and video equipment to a Dubai-based purchaser. OFAC stated that the company had reason to know that the Dubai-based entity would resell the products to Iran.

In light of these recent actions, any U.S. company engaged in international business would do well to ensure that they have robust sanctions compliance programs and that due diligence is done.

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