Sanctions and Compliance, A Cautionary Tale…

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Sanctions and Compliance, A Cautionary Tale…

On February 24, 2012, the US Treasury’s Office of Foreign Asset Control (OFAC) announced the following Civil Money Penalty Information:

“Online Micro, LLC Settles Iran Export Apparent Violations: Online Micro, LLC (“Online”), Costa Mesa, CA, and one of its principal owners (the “Owner”) have agreed to settle administrative charges made by the Office of Foreign Assets Control (“OFAC”) arising from apparent violations of the Iranian Transactions Regulations, 31 C.F.R. part 560 (the “ITR”), which were promulgated pursuant to, inter alia, the International Emergency Economic Powers Act (“IEEPA”), and are administered by OFAC. The apparent violations relate to unlicensed exports by Online and the Owner, between 2009 and 2010, of computer-related goods indirectly from the United States through Dubai, United Arab Emirates, to Iran in apparent violation of § 560.204 of the ITR. Online, the Owner, and OFAC agreed to a settlement in the amount of $1,054,388 with respect to apparent violations of the ITR by Online and the Owner. This settlement with OFAC is related to criminal plea agreements reached by Online, the Owner, and the Office of the United States Attorney for the District of Columbia, as well as settlement agreements between Online, the Owner, and the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”). OFAC’s settlement with Online and the Owner has been deemed satisfied by their acceptance of criminal responsibility, the criminal forfeiture of assets, and the restrictions imposed by BIS against Online and the Owner.

Online and the Owner each pleaded guilty in the U.S. District Court for the District of Columbia to one count of criminal conspiracy to violate IEEPA and the ITR after an indictment arising from the same conduct was filed by the U.S. Department of Justice. In addition to the forfeiture of a money judgment in the amount of $1,899,964 by Online and the Owner, Online and the Owner also accepted BIS Export Denial Orders which prohibit them from exporting any goods from the United States for a ten-year period. The BIS Export Denial Orders were suspended in their entirety provided Online and the Owner remain in compliance with the terms of their Settlement Agreements with BIS and with the Export Administration Regulations.

Online and the Owner did not voluntary disclose these matters to OFAC. OFAC considers the apparent violations to be egregious.

The entire Settlement Agreement with OFAC is posted under the Selected Settlement Agreement section of OFAC’s Web site:”

From this short snipet of information several key issues emerge that are worthy of mention here.

First, and probably the least surprising of all, it is critically important that both corporate and financial institutions take this case to heart and make sure that they have a current, well-crafted and well implemented OFAC Sanctions Compliance Program in place. It is not enough to treat sanctions compliance as an “add-on” to one’s AML Compliance program, nor is it sufficient to assume my program is working at its optimum level of performance just because you may not have experienced a 602 letter from OFAC or any spotlight on issues from regulators.

Secondly, while ignorance may be bliss, it is no longer sufficient to not fully understand who your customers are and what their business entails. Was the firm in Dubai identifiable as a business conduit to Iran? The assumption here has to be that the answer in all likelihood is “yes”… Online Micro LLC should have known the parties with whom they were engaged with. And more importantly, they should have been able to know who the beneficial interest was… in this case Iran.

Finally, this also points to the growing complexity of OFAC Sanctions, particularly involving Iran. There have been numerous significant changes over the past 12-18 months in US Government Sanctions against Iran – and not the least of which is the growing roles and convergence of Sanctions issues between US Treasury (OFAC), US Department of Commerce (BIS) and US State Department in relation to CISADA and NDAA as the newest entries in US-Iranian Sanctions Programs.

Sanctions Compliance is more intricate than ever before. In calendar year 2011 the OFAC List of Specially Designated Nationals and Blocked Persons (the “SDN List”) experienced 77 changes. So far in 2012, there have been 10 changes to the list of entities. Chances to trade sanctions and other related actions by US Department of State further cloud the landscape of “what to do and how to do it” in the land of Sanctions Compliance. And the view that one’s program is “good enough” increasingly proves to be not so true under the spotlight of examination; especially in light of the breadth and depth of Sanctions Program changes of late.

The problem for all of us at one point or another is that we don’t know what we don’t know. We have blind spots as to how we are performing in a particular area of our lives. AML/BSA and Sanctions Compliance are certainly not areas where one may be immune to this condition.

We suggest that with the ever-changing landscape in Sanctions Compliance, whether involving the US Treasury Sanctions from OFAC or Export and Trade Sanctions from the Department of Commerce, or involvement of other US or non-US governmental sanctions compliance programs that may affect your business, that corporations, financial institutions and financial services providers engage in an Independent Review, Assessment and Testing of their Sanctions Compliance Programs. And, in so doing, that you work with qualified, industry recognized individuals that have demonstrable skills and experience in navigating these waters.

While the numbers of truly qualified parties in this arena is not that large, we know of such providers and believe that enlisting their help will prove to be a worthwhile investment… We suspect that firms who have experienced assessment of civil money penalties for violations of OFAC or BIS Sanctions would most likely agree with our suggestions.

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