OFAC Enforcement Actions: DNI Express Shipping Company and Southern Cross Aviation, LLC

These were both issued on August 8th, and were both Finding of Violations for not adhering to the Reporting, Procedures and Penalties Regulations (RPPR).

Here’s the DNI facts:

On May 29, 2015, OFAC issued an Administrative Subpoena to DNI to investigate its involvement in the facilitation of the shipment, supply, and sale of farm equipment to Sudan in apparent violation of the Sudanese Sanctions Regulations, 31 C.F.R. §§ 538.205, 538.206 (SSR).1 OFAC issued a Cautionary Letter to DNI for the underlying apparent violations of the SSR, but determined that DNI’s conduct in response to OFAC’s investigation warranted an administrative response.

On June 12, 2015, through its outside counsel, DNI responded to the administrative subpoena (“administrative subpoena response”). After reviewing DNI’s administrative subpoena response, OFAC determined that several of DNI’s responses to the administrative subpoena were contradictory, false, materially inaccurate, incomplete, and contained misleading statements.

On July 12, 2016, OFAC sent DNI’s outside counsel an e-mail (“administrative subpoena follow-up e-mail”), which, in part, requested clarification on DNI’s version of events and supporting documents that DNI had provided to OFAC in response to the administrative subpoena and also sought clarification from DNI about whether it understood its obligations under § 501.602 of the RPPR and § 538.205 of the SSR.

On July 21, 2016, DNI, through its outside counsel, responded to the administrative subpoena follow-up email. OFAC found DNI’s responses to the administrative subpoena follow-up email to be contradictory, false, materially inaccurate, incomplete, and misleading. DNI’s response also stated that it understood its obligations under § 501.602 of the RPPR and § 538.205 of the SSR. Additionally, DNI’s response to the administrative subpoena follow-up email introduced new information that was responsive to the original administrative subpoena, but was not included in the response to the original administrative subpoena.

And why OFAC decided on a Finding of Violation:

OFAC considered the following to be aggravating factors:

  1. DNI, through counsel, demonstrated reckless disregard for its U.S. sanctions requirements by failing to provide accurate and complete information in response to an OFAC Administrative Subpoena;
  2. DNI, and its owner, facilitated both the shipment and attempted shipment of goods to Sudan and provided financing for such shipments. Accordingly, DNI had actual knowledge that its responses to OFAC’s Administrative Subpoena concerning the facilitation of the shipment and attempted shipment of goods to Sudan and related financing were false, materially inaccurate, materially incomplete, and misleading;
  3. After supplying OFAC with responses that were false, materially inaccurate, materially incomplete, and misleading, OFAC gave DNI the opportunity to correct or clarify its original responses. However, DNI failed to appropriately amend its responses and instead confirmed its original responses; and
  4. By providing false, materially inaccurate, materially incomplete, and misleading statements, DNI did not fully cooperate with OFAC’s investigation.

OFAC found the following to be mitigating factors:

  1. DNI appears to be a small business;
  2. DNI has no prior OFAC sanctions history; and
  3. DNI’s narrative responses appear to have been filtered through DNI’s outside attorney.

And the lesson to be learned:

This enforcement action highlights the compliance obligations of persons subject to the RPPR, and the importance for all subject persons to furnish information to OFAC during the course of an investigation in a manner consistent with such obligations. Companies and individuals alike should be diligent in their review of information and documentation that may be responsive to an administrative subpoena issued by OFAC. A person’s response to an administrative subpoena must be accurate, complete, timely, and in accordance with sanctions regulations and definitions. As exhibited in this matter, failure to provide complete or accurate information to OFAC in response to an administrative subpoena constitutes a violation of the RPPR.

And Southern Cross’ behavior:

On June 27, 2016, OFAC issued an Administrative Subpoena and an accompanying letter to Southern Cross in which OFAC stated it had reason to believe that Southern Cross was recently involved in the sale of several helicopters destined for Iran via an Iranian businessman based in Ecuador (the “Iranian Businessman”). The Administrative Subpoena directed Southern Cross to provide detailed information, descriptions, and documents regarding any such transactions, as well as any other dealings with Iran during the prior five (5) years. On July 5, 2016, the President of Southern Cross sent an email to OFAC in which the company denied knowing or conducting any business with the Iranian Businessman or dealing with Iran in any way. On July 8, 2016, Southern Cross provided a written response to OFAC’s Administrative Subpoena in which Southern Cross claimed that a Southern Cross sales representative located in Ecuador (the “SC Ecuador Representative”) sent technical details to an Ecuadorian group for a potential sale of helicopters to an Iranian group for operation in Ecuador and provided no documentation to OFAC other than a copy of the company’s internal Export Management Manual.

On October 6, 2016, OFAC issued a second Administrative Subpoena to Southern Cross seeking similar information and documentation and specifically requesting certain documentation relating to the potential sale. In its October 11, 2016 response to OFAC’s second Administrative Subpoena, Southern Cross submitted correspondence relating to the potential sale, including direct email exchanges between the SC Ecuador Representative and the Iranian Businessman explicitly referenced in both of OFAC’s Administrative Subpoenas. The information and documentation submitted by Southern Cross also included: (i) email exchanges between the SC Representative and the Iranian Businessman in which they discussed a letter of intent and sale of helicopters to an agent in Iran; and (ii) email exchanges between the SC Representative and the Ecuadorian group in which they discussed the sale of two helicopters to the Iranian Businessman in greater detail, as well as a letter of intent from the Iranian Businessman in which he indicated the letters were from Iran. Southern Cross failed to produce this responsive information to OFAC’s first Administrative Subpoena.

And OFAC’s reasoning:

OFAC considered the following to be aggravating factors:

  1. Southern Cross demonstrated reckless disregard for its U.S. sanctions requirements by failing to provide accurate and complete information in response to an OFAC Administrative Subpoena;
  2. Southern Cross had actual knowledge or reason to know of the conduct that led to the violation in this instance; and
  3. Southern Cross did not fully cooperate with OFAC’s investigation.

OFAC found the following to be mitigating factors:

  1. Southern Cross appears to be a small-to- medium-sized business;
  2. Southern Cross has no prior OFAC sanctions history; and
  3. the underlying potential sale in question does not appear to have occurred.

And the lesson:

This enforcement action highlights the compliance obligation of persons subject to the RPPR, and the importance for all subject persons to cooperate with OFAC investigations. Companies and individuals alike should be diligent in their review of information and documentation that may be responsive to an Administrative Subpoena issued by OFAC. A person’s response to an Administrative Subpoena must be accurate, complete, and timely. As exhibited in this matter, failure to provide complete information to OFAC in response to an Administrative Subpoena constitutes a violation of the RPPR.

Links:

Enforcement Information: DNI Express, Southern Cross

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