Interesting case: Haverly settled two Apparent Violations of the Ukraine Related Sanctions Regulations (the first under this program) for $75,375, knocked down from a base penalty of $125,000 (and a maximum of $590,282). The violations were not self-reported, but were non-egregious.
The practical upshot is that Haverly invoiced Rosneft (on the SSI List under Directive 2) with terms of 30 and 70 days, under the magic 90 day limit. However, Rosneft asked for additional info and, by the time Haverly came up with it, it was past 90 days, making for a prohibited extension of credit:
From on or about May 31, 2016, to on or about October 27, 2016, Rosneft made four attempts to remit payment related to the second invoice, each of which was rejected by financial institutions after determining the transaction was prohibited by OFAC’s regulations as debt of greater than 90 days maturity of an SSI entity subject to Directive 2. At points during the period associated with these rejected payment attempts, Haverly received information from Rosneft, including copies of Society for Worldwide Interbank Financial Telecommunication messages amongst and between financial institutions regarding the rejected transactions — some of which contained information and instructions stating that the underlying activity may have a nexus to sectoral sanctions.
However, at the time of the payment attempts Haverly did not have a sanctions compliance program and did not recognize that the delayed collection of payment was prohibited. Haverly did not approach OFAC for guidance or authorization, however, and instead explored various options to collect the payment associated with the second invoice from Rosneft. At the suggestion of Rosneft, Haverly re-issued and re-dated the second invoice. Haverly then successfully received payment on the second invoice from Rosneft on January 11, 2017.
And here are the General Factors considered in calculating the final penalty:
OFAC considered the following to be aggravating factors:
(1) With respect to the second apparent violation, Haverly demonstrated reckless disregard for U.S. economic sanctions requirements by repeatedly ignoring warning signs that its conduct constituted or likely constituted a violation of OFAC’s regulations;
(2) Haverly’s management team had actual knowledge of the conduct giving rise to the apparent violations; and
(3) Haverly did not possess a formal OFAC sanctions compliance program at the time the apparent violations occurred.
OFAC found the following to be mitigating factors:
(1) The apparent violations resulted in minimal actual harm to the sanctions program objectives of the URSR, and OFAC would have likely authorized the transactions had Haverly requested a license to receive the payments;
(2) Haverly 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;
(3) Haverly is a small company with a limited number of employees; and
(4) Haverly engaged in remedial efforts that included the creation of a Sanctions Compliance Officer position, and implementation of a risk-based compliance program with screening designed to review all current and future clients of Haverly for OFAC purposes.
OFAC added in Haverly’s commitments to better compliance, including regular risk assessments, a commitment to creating a culture of compliance and ongoing training.
OFAC closes with a warning about SSI violations:
This enforcement action highlights the risks associated with engaging in transactions involving sectors of the Russian economy subject to U.S. economic and trade sanctions. The development and implementation of a risk-based sanctions compliance program would provide such companies with an ability to assess prospective and real-time transactions for potential prohibitions and violations of OFAC’s regulations. An effective sanctions compliance program includes policies, procedures, and controls capable of identifying at-risk transactions and customers or counter-parties for review; escalating such matters to a sanctions compliance officer or point-of-contact for proper analysis; an ability to respond and react to warning signs regarding potential violations, including transactions blocked or rejected by financial institutions in accordance with OFAC’s regulations; and an adequate training program. OFAC encourages companies to exercise enhanced due diligence in business relationships with entities subject to the SSI List and to avoid the use of unorthodox business practices — such as the amendment or alteration of trade documents, or resubmission of payment information without a sanctions- related term, phrase, or location.