Cobham Holdings settled 3 non-egregious, voluntarily self-reported violations of the Ukraine Related Sanctions Regulations for $87,507. In this case, the violations involved business dealings with a party majority owned by a sanctioned entity.
Here are some interesting bits describing what happened:
At all relevant times, although AAT was not explicitly identified on OFAC’s List of Specially Designated Nationals and Blocked Persons (the “SDN List”), it was 51 percent owned by Joint-Stock Company Concern Almaz-Antey (“JSC Almaz-Antey”), which OFAC had blocked and added to the SDN List on July 16, 2014, two weeks before the July 31, 2014 shipment. As a result, AAT was blocked pursuant to §§ 589.201 and 589.406 of the URSR at the time Metelics engaged in the three shipments described below.
On June 19, 2014, Metelics performed a denied party screening for the order that returned warnings for Russia generally but not AAT specifically, as JSC Almaz-Antey had not yet been added to the SDN List.
Although OFAC had designated JSC Almaz-Antey and added it to the SDN List approximately two weeks before, and despite the inclusion of two uncommon terms in the names of both the SDN and the specific end-user for the subject transaction (“Almaz” and “Antey”), Metelics’ denied party screening produced no warnings or alerts for AAT.
Cobham determined that its screening software failed to generate an alert because JSC Almaz- Antey (the entity identified on the SDN List) did not include the word “telecom.” The third- party screening software relied on by Cobham used an all word match criteria that would only return matches containing all of the searched words, even though Cobham had set the search criteria to “fuzzy” to detect partial matches. This meant that the software failed to match “Almaz Antey” when Cobham searched for “Almaz Antey Telecom.”
While the maximum penalty for the violations was $1,990,664, the base penalty (because it was self-reported and non-egregious) was $125,010. And here is how OFAC reduced the penalty:
OFAC determined the following to be aggravating factors: (1) Metelics failed to recognize warning signs when exporting goods on multiple occasions through distributors to the subsidiary of a blocked person with nearly the same name as the blocked person; (2) the Director of Global Trade Compliance reviewed and approved the transactions constituting the apparent violations; (3) the apparent violations resulted in harm to the sanctions program objectives of the URSR by conferring an economic benefit to a blocked person tied to Russia’s defense industry; (4) Metelics and Cobham are large and sophisticated entities operating in a sensitive industry; and (5) Cobham and its compliance personnel were involved in prior apparent violations of the Iranian Transactions and Sanctions Regulations administered by OFAC and Metelics was subject to a consent agreement for violations of the International Traffic in Arms Regulations administered by the U.S. Department of State resulting from recurring compliance failures.
OFAC determined the following to be mitigating factors: (1) Metelics has not received a penalty notice or finding of violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the Apparent Violations; (2) Cobham cooperated with OFAC by submitting a detailed disclosure; (3) Cobham implemented certain remedial measures, including those described in more detail below; and (4) that the primary transaction underlying the Apparent Violations straddled changes in the URSR such that a portion of the transaction occurred prior to it being prohibited.
Additionally, Cobham has confirmed to OFAC that it has terminated the violative conduct and taken the following steps to minimize the risk of recurrence of similar conduct in the future:
• Cobham acquired and implemented new and enhanced sanctions screening software which, according to Cobham, does not possess the same deficiency as its prior sanctions screening software and that is capable of identifying and flagging potential matches to persons with close name variations to parties identified on the SDN List;
• Cobham acquired and implemented a screening and business intelligence tool with the capability of identifying and flagging persons known to be owned by parties identified on the SDN List, and has developed a process for employing the business intelligence tool to conduct enhanced due diligence on high-risk transactions from an OFAC sanctions perspective, to include any transaction involving a Cobham U.S. entity and any party in either Russia or Ukraine; and
• Cobham circulated a lessons learned bulletin to all U.S.-based international trade compliance personnel that described the apparent violations, reiterated that U.S. law may prohibit transactions with unlisted entities owned or controlled by listed parties, and urged personnel to alert Cobham’s compliance team whenever a proposed transaction involves an entity who they have reason to believe may be owned or controlled by a prohibited party.
And, lastly, OFAC makes its learning lesson point:
This case demonstrates the importance of companies operating in high-risk industries (i.e., defense) to implement effective, risk-based compliance measures, especially when engaging in transactions involving high-risk jurisdictions. Persons employing sanctions screening software should take steps to ensure it is sufficiently robust and that appropriate personnel are trained on its functionality. Furthermore, it is essential that companies engaging in international transactions maintain a culture of compliance where front line staff are encouraged to follow up on sanctions issues, including by promptly reporting to compliance personnel transactions suspected to involve sanctioned parties.