So, Apollo (now called Carlyle Aviation Partners Ltd) had 12 apparent violations of the Sudanese Sanctions Regulations for leasing aircraft engines to a company, which subleased them to another, which installed them on aircraft belonging to the SDN Sudan Airways. The lease agreements contained provisions prohibiting the lessee from transferring the engines to any country subject to US or UN sanctions.
According to OFAC, this is the problem:
Notwithstanding the inclusion of this clause, Apollo did not ensure the aircraft engines were utilized in a manner that complied with OFAC’s regulations. For example, at the time, Apollo did not obtain U.S. law export compliance certificates from lessees and sublessees. Additionally, Apollo did not periodically monitor or otherwise verify its lessee’s and sublessee’s adherence to the lease provision requiring compliance with U.S. sanctions laws during the life of the lease. As a result, Apollo learned where its engines had actually flown only after the engines were returned to Apollo at the end of the lease.
Because Apollo was considered a large sophisticated firm:
During the time in which the apparent violations occurred, Apollo was a multi-strategy aviation investment manager with extensive technical knowledge, in-depth industry expertise, and long- standing presence in the mid-life commercial aviation sector. Apollo’s aircraft investing included acquiring, refurbishing, marketing, and leasing commercial jet aircraft, engines and related assets, and disassembly and resale of aircraft and components. By the end of 2015, Apollo reported to have nearly $2.5 billion of aviation assets under management. At that time, Apollo had offices in the United States, Ireland, and Singapore.
The maximum penalty was $3,000,000, but these were considered non-egregious and had been voluntarily self-disclosed. Therefore, the base penalty was $360,000.
OFAC arrived at the final amount based on the following aggravating factors:
1. The unauthorized use of Apollo’s aircraft engines in Sudan by an entity on the SDN List resulted in harm to U.S. sanctions program objectives;
2. Apollo is a large and sophisticated entity; and
3. Although Company 1 appears to have violated the terms of its engine lease prohibiting any use in sanctioned countries, Apollo failed to monitor or otherwise verify the actual whereabouts of these aircraft engines during the life of its leases.
and mitigating factors:
1. No Apollo personnel had actual knowledge of the conduct leading to the apparent violations;
2. Apollo 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. Apollo implemented a number of remedial measures in response to the apparent violations, including investment in additional compliance personnel and systems; and
4. Apollo provided information to OFAC in a clear, concise, and well-organized manner.
And the company fixed up its compliance program:
• Apollo improved its Know-Your-Customer screening procedures in keeping with global best practices;
• Apollo enhanced employee training on U.S. export law, including by making employees aware of the screening process used by the company; and
• Apollo began obtaining U.S. law export compliance certificates from lessees and sublessees.
And here is the lesson to be learned:
This enforcement action highlights the importance of companies operating in high-risk industries to implement effective, thorough and on-going, risk-based compliance measures, especially when engaging in transactions concerning the aviation industry. For example, on July 23, 2019, OFAC issued an advisory to the civil aviation industry to warn of deceptive practices employed by Iran with respect to aviation matters. While that advisory is focused on Iran, participants in the civil aviation industry should be aware that other jurisdictions subject to OFAC sanctions may engage in similar deceptive practices. This action also highlights the importance of companies operating internationally to implement Know You Customer screening procedures and implement compliance measures that extend beyond the point-of-sale and function throughout the entire business or lease period.
And there’s even a paragraph pointing folks to the OFAC Framework document (the title they quote for their own document is wrong).
But, still, the level of oversight OFAC seems to expect here seems to be overkill – especially since the sublessee installed the engines, not Apollo’s customer. Yes, it’s similar to the bar being set in the PACCAR and e.l.f. cases, but does seem a step further than either of those cases.