The settlement of $1,125,000 is for 36 apparent violations of the Burmese Sanctions Regulations between 2011 and 2014. The value of the transactions was $1,796,400, while the base penalty of $4,500,000 was half of the statutory maximum because, although these violations were egregious, they were voluntarily self-disclosed.
Here is some interesting context:
Eagle Shipping is a ship management company that carries out the commercial and strategic management of vessels owned by subsidiaries of its parent company, Eagle Bulk Shipping Inc., a Marshall Islands corporation (Eagle Bulk Shipping Inc. and its subsidiaries, including Eagle Shipping and Eagle Bulk Pte Ltd, are hereinafter collectively referred to as “Eagle”). Eagle is a fully integrated shipowner-operator engaged in the global transportation of drybulk commodities. In 2014, Eagle commenced a voluntary bankruptcy under Chapter 11 of the U.S. bankruptcy code and emerged with new ownership, a newly appointed board of directors, and a new senior management team. Shortly thereafter, Eagle initiated a review of Eagle’s past compliance with U.S. sanctions, identified the Apparent Violations that occurred between 2011 and 2014, and voluntarily self-disclosed these matters to OFAC.
So, before the company was reorganized, and management replaced, what did Eagle do?
On or around June 3, 2011, Eagle Shipping’s affiliate in Singapore, Eagle Bulk Pte Ltd (“Eagle Pte”), entered into a chartering agreement with a sand buyer in Singapore (the “Singaporean Company”) to carry sea sand from Kawthaung, Burma to Singapore onboard an Eagle vessel (“Eagle Vessel”). After loading the sand cargo onto the vessel, on June 28, 2011, the Singaporean Company sent Eagle Pte a set of sample shipping documents, including a bill of lading and export cargo manifest, as an example for Eagle Pte’s documentation of the sand cargo. However, the sample documents raised concerns for the former management of Eagle because the documents listed Myawaddy, an entity on the SDN List at that time, as the shipper.
On June 29, 2011, apparently in response to Eagle Pte’s demand for clarification, the Singaporean Company sent Eagle another sample bill of lading that listed an alternate shipper of the sand. Apparently having decided to accept the change in shipper’s name from Myawaddy to the alternate shipper, a former manager of Eagle instructed the captain of the Eagle Vessel that he may sign the departure documentation after making sure that the alternate shipper was identified as the shipper. The captain, however, refused to sign the departure documentation because he learned that some of the additional shipping documents (such as mate’s receipt and export declaration) presented by the shipping agents explicitly listed Myawaddy as the shipper of the cargo.
On June 30, 2011, following the captain’s refusal to sign the shipping documents with Myawaddy’s name, the Singaporean Company’s local agent sent the captain a set of revised shipping documents after changing the shipper’s name from Myawaddy to the alternate shipper. The captain forwarded a copy of the revised documents to a former manager and other staff of Eagle for a review and approval, and in an email exchange, warned that according to the information from a port officer, the alternative shipper did not sell sea sand in this region, and the Burmese government had a contract only with Myawaddy and only Myawaddy was the shipper.
On the same day, Eagle received a message from the Singaporean Company that continued delays would result in a negative repercussions with the Burmese government. Additionally, the captain reported to Eagle that Burmese local officials had taken the crew’s passports and refused to clear the vessel for departure. Eagle immediately applied for an OFAC license authorizing the Eagle Vessel to carry the sand cargo to Singapore due to the evidence suggesting an SDN’s involvement in the shipping transaction. However, before OFAC responded to the license request, on or about July 2, 2011, Eagle, citing crew safety concerns, signed the revised shipping documents and obtained the return of the crew’s passports. The Eagle Vessel then left Burma and subsequently discharged the cargo in Singapore.
But, wait… there’s more (and it’s ostensibly worse):
After this first sand voyage, on May 18, 2012, Eagle filed a new application with OFAC requesting a license that would authorize Eagle vessels to carry more sand cargoes procured, partially or wholly, directly or indirectly, from Myawaddy. On October 11, 2012, OFAC denied the application.
While the application was pending with OFAC, and despite the absence of OFAC’s authorization, Eagle resumed shipping sand procured from Myawaddy. The former President of Eagle Shipping later received OFAC’s denial letter, but allegedly failed to forward it to others within Eagle. Eagle thereafter continued carrying sand cargoes supplied by Myawaddy from Burma to Singapore.
So, the 75% reduction is ultimately due to OFAC’s calculus:
Specifically, OFAC determined the following to be aggravating factors:
- Eagle demonstrated reckless disregard for U.S. sanctions requirements by ignoring OFAC’s license denial and other warning signs about Myawaddy’s involvement in the sand voyages;
- the former President of Eagle Shipping was involved in and approved of the sand shipping transactions that constituted the Apparent Violations;
- the transactions giving rise to the Apparent Violations conferred significant economic benefits to Burma’s military regime; and
- Eagle is a commercially sophisticated shipping company operating globally with experience and expertise in international trade and shipping transactions.
OFAC determined the following to be mitigating factors:
- Eagle has not received a penalty notice or finding of violation from OFAC in the five years preceding the date of the earliest transaction giving rise to the Apparent Violations;
- Eagle, under its new management, provided substantial cooperation with OFAC’s investigation, including by expending significant amount of resources to conduct an internal investigation, providing clear, concise, and well-organized submissions with supporting documentation for OFAC’s review, responding in an effective, efficient, and timely manner to OFAC’s multiple requests for information, and executing multiple tolling agreements; and
- Eagle undertook significant remedial measures by conducting a thorough internal look- back investigation to identify the causes for compliance failure and significantly enhanced its sanctions compliance program. Specifically, Eagle has confirmed that it has terminated the conduct that led to the Apparent Violations and has undertaken the following measures as part of its compliance commitments to minimize the risk of recurrence of similar conduct in the future:
Appointed a dedicated Compliance Officer;
Developed and implemented a formal sanctions compliance program with specific policies and procedures for compliance screening, transaction checklists, and red flag identification tools;
Provided sanctions training to employees in Stamford, Connecticut and Singapore, and instituted a practice of requiring continuing education and training on sanctions- related matters for its personnel;
Enhanced its screening procedures and updated and strengthened its sanctions compliance provisions included in standard contracts; and
Prepared for and developed contingency plans in the event that Eagle identifies the interest of an OFAC-blocked or -prohibited party after cargo is loaded on an Eagle vessel.
And the “lessons learned” harks back to the Framework document (shocker!):
As noted in OFAC’s Framework for Compliance Commitments, this case demonstrates the importance for companies operating in high-risk industries (e.g., international shipping and trading) to implement risk-based compliance measures, especially when engaging in transactions involving exposure to jurisdictions or persons implicated by U.S. sanctions. It is essential that companies engaging in international transactions consider and respond to sanctions-related warning signs, such as information that goods originated from or were supplied by a person or entity subject to U.S. economic and trade sanctions. The failure to adhere to formal responses from OFAC, such as the adjudication of license applications or requests for guidance, can represent serious sanctions infractions.
Interesting how OFAC really needed to impose a stiff penalty because of the egregiousness of the behavior, but really didn’t want to punish the firm’s new management.
Also, the original shipments where the documents were signed under duress brings up an interesting question. You can do something like that under the FCPA (I did so last year in Bangladesh) as long as it’s reported properly. I wonder what OFAC’s guidance is on that?
Seems like Eagle really got into trouble once they proceeded to continue shipments without the license approval.
And I wonder why we have not seen the Singaporean company be designated for its part in the transactions – had they never dealt with Myawaddy before? The fact that they were not named would tend to imply that such was the case.