16 Enforcement Actions in 2017 Totaling $119,517,845 in Penalties and Settlements-Why You Should Know About OFAC

In 2017, the U.S. Treasury Department Office of Foreign Assets Control (OFAC) assessed $119,517,845 in penalties and settlements for violations of U.S. economic sanctions.

U.S. economic sanctions are designed to further national security interests, foreign policy objectives, and economic stability. The U.S. government takes violation of them very seriously. The dollar amount above represents 16 cases for 2017.

U.S. economic sanctions are targeted against certain foreign countries and regimes, terrorists and terrorist organizations, weapons of mass destruction (WMD) proliferators, narcotics traffickers and others.

You may think that you do not have to worry about the Foreign Assets Control Regulations (FACR) because your company does not export or you do not do business with drug traffickers or criminals, but you should think again. Agriculture industry related companies have been hit with penalties for violating these regulations. Here is an example from 2016:

2016 - PanAmerican Seed Company, a division of Ball Horticultural Company- Foreign Distributors. For a number of years (2009 through 2012), PanAmerican Seed of West Chicago, IL indirectly exported primarily flower seeds on 48 occasions to consignees based in two third-countries located in Europe or the Middle East. From there, the seeds were re-exported by the consignees to two Iranian distributors.

According to enforcement information “PanAm Seed engaged in a pattern or practice designed to conceal the involvement of Iran and/or obfuscate the fact that the seeds were ultimately destined for distributors located in Iran.”

Aggravating factors included the company’s continued sales to its Iranian distributors for nearly 8 months after the company’s Director of Finance learned of OFAC’s investigation. The sad thing here is that the exports were likely eligible for an OFAC export license under TSRA. $4.32 Million settlement for violation of Iran sanctions program (September, 2016).

Now you know the FACR exists. You also know that fines and civil penalties for violating the applicable laws can be large (and willful violations can result in imprisonment). So, what can you do to avoid violating those regulations? Our recommendations are as follows:

1. Determine how the FACR can affect your business. There are prohibited countries, as well as prohibited entities and persons.

2. Perform restricted party screening on your supply chain, your customers, joint venture partners, employees, independent contractors and intermediaries, such as distributors.

3. Develop a formal, written OFAC compliance program and policies to ensure you are following the law. Understand how these regulations can affect the conduct of U.S. parent corporations, their foreign subsidiaries, and U.S. persons wherever they are located (including those who work for foreign subsidiaries).

4. Conduct due diligence on your foreign partners to ensure they are aware of U.S. legal requirements and have procedures in place to ensure compliance and avoid violations of U.S. law.

5. Check your existing international contracts to confirm you are flowing down U.S. legal requirements to your foreign partners as necessary, since you cannot do indirectly through a foreign partner what you cannot do directly (for example, violate the FACR).

If you have questions regarding these cases and how they may affect your business, contact Jean Schtokal at 517.371.8276 or at jschtokal@fosterswift.com. Jean practices primarily in the business transactions area, handling both domestic and foreign matters.