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Someone at S&P did not read the Haverly Systems OFAC enforcement action… [UPDATE]

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and S&P Global, Inc. related to transactions in 2016 and 2017

Release date

04/01/2022

Body

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today announced a $78,750 settlement with S&P Global, Inc. (“S&P Global”) a New York-based company that provides business information and financial analytics. S&P Global has agreed to settle its potential civil liability for apparent violations of the Ukraine-Related Sanctions Regulations, 31 C.F.R. part 589, specifically Directive 2 issued pursuant to Executive Order 13662 of March 24, 2014, “Blocking Property of Additional Persons Contributing to the Situation in Ukraine,” (“E.O. 13662”). The apparent violations occurred between August 2016 and October 2017, when S&P Global and a company it acquired reissued and re-dated multiple invoices to continue to extend credit to JSC Rosneft (“Rosneft”), a state-owned Russian oil company, in violation of the debt and equity restrictions set forth under E.O. 13662. After reissuing and re-dating four invoices to extend the original payment dates, S&P Global ultimately accepted past-due payments totaling $82,500 from Rosneft. OFAC determined that S&P Global did not voluntarily self-disclose the apparent violations and that the apparent violations constitute a non-egregious case.

Here are the details from the enforcement action:

What happened

In August 2016, S&P Global acquired Petroleum Industry Research Associates, Inc. (“PIRA”), a U.S. company that provided research and forecasting products and services to over 500 energy and commodity customers in 60 countries. Over the fall of 2016, S&P Global integrated PIRA’s business, including its ongoing contracts with JSC Rosneft (“Rosneft”), into S&P Global’s operations. Rosneft, Russia’s largest oil company, was placed on OFAC’s Sectoral Sanctions Identification List (“SSI List”) on July 16, 2014, pursuant to Directive 2 of E.O. 13662. Under Directive 2, all transactions or other dealings in new debt of Rosneft of longer than 90 days maturity were prohibited.

In August 2015, prior to its acquisition, PIRA issued an invoice for $82,500 to Rosneft related to an ongoing subscription service that offered both bespoke advisory services and market analysis. Although the invoice had a payment due date of October 18, 2015, Rosneft did not pay it by the due date. Rosneft attempted to make payment in May 2016.

Upon receipt of Rosneft’s attempted transfer, PIRA’s bank rejected the payment. Rosneft notified PIRA of the rejection on June 2, 2016, informing it that the bank had stopped the payment “in accordance with the sanctions program” and that Rosneft would try again. Later that month, Rosneft made another attempt to make the payment. The U.S. financial institution at that point requested additional information from Rosneft to process the transfer. Rosneft did not respond to the request.

Following the rejection of the first payment and the unprocessed second payment attempt, PIRA suggested in July 2016 that Rosneft pay the overdue invoice by check. At that point, Rosneft again informed PIRA that the rejected payments were “returned by the bank because of sanctions policy” and suggested that PIRA contact its U.S. financial institution.

In August 2016, having still not received payment for the August 2015 invoice, S&P Global employees (formerly PIRA employees) reissued and re-dated PIRA’s August 2015 invoice with a new date of August 26, 2016—374 days after the invoice for the debt was originally issued. In sending the revised invoice to Rosneft, S&P Global management emphasized to Rosneft the importance of timely payment, cautioning that “when the payment is made against an old invoice (as recent ones were), the bank may perceive that to be ‘extending credit’ to a Russian company, which we cannot do by law.” In October 2016, S&P Global received a $55,000 wire transfer from Rosneft, partially settling the original $82,500 invoice.

With $27,500 remaining unpaid, S&P Global emailed Rosneft on November 14, 2016, about the balance. On November 22, 2016, S&P Global reissued the original August 2015 invoice once again — some 462 days after the invoice for the debt was originally issued — creating two “new” invoices of $13,750 each, both with payment due upon receipt. Rosneft sent a $13,750 payment for one of these two revised invoices on December 29, 2016.

By August 2017, Rosneft still had not paid the outstanding amount of $13,750 due to S&P Global. S&P Global then reissued and re-dated a fourth invoice for Rosneft, dated September 5, 2017—749 days after PIRA had issued the original invoice. On October 6, 2017, Rosneft remitted $13,750 to Respondent.

By transacting and otherwise dealing in new debt of longer than 90 days maturity when S&P Global extended the payment date of its invoices, S&P Global appears to have violated Directive 2 of E.O. 13662 and § 589.201 of the Ukraine-Related Sanctions Regulations, 31 C.F.R. part 589 (the “Apparent Violations”).

OFAC’s math

So, as it says, not self-reported, but non-egregious. That reduces the base penalty to $175,000 from the statutory maximum of $1,246,248. Here’s how OFAC decided on reducing the $175K to less than half that:

OFAC determined the following to be aggravating factors:

(1) S&P Global (and prior to its acquisition, PIRA) failed to exercise a minimal degree of caution or care when it reissued and re-dated four invoices to extend the payment date of invoices far beyond the authorized debt tenor, knowing or having reason to know such conduct would violate U.S. sanctions regulations;

(2) PIRA management, and later S&P Global managerial staff, were aware of and involved in the conduct giving rise to the Apparent Violations; and

(3) PIRA was a commercially sophisticated entity and considered a leader in global energy market analysis, with over 500 customers in 60 countries. S&P Global is a large and commercially sophisticated company with an extensive global presence and operations.

OFAC determined the following to be mitigating factors:

(1) S&P Global 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) S&P Global took remedial measures by enhancing their compliance program to better ensure compliance with OFAC sanctions, creating more robust training, adding periodic testing to invoices involving SSI List entities, and adding additional staff to manage sanctions issues; and

(3) S&P Global cooperated with OFAC during the investigation by submitting detailed documentation, being responsive to OFAC’s requests, and entering into tolling agreements.

And today’s OFAC lesson is?

This case underscores the importance of careful adherence to OFAC regulations, including in cases where counterparties may make compliance challenging. Companies who do business with entities on the SSI List, for example, must ensure that they comply with all aspects of the relevant Directives. Firms facing similar circumstances should contact OFAC if compliance becomes untenable due to actions or delays by their clients on the SSI List.

This action also emphasizes the importance of U.S. companies conducting sanctions-related due diligence and taking active steps to extend their compliance programs, including training and monitoring, to newly incorporated businesses and their employees. After merger and acquisition transactions are complete, companies should continue to closely oversee their new business elements in addition to their existing units to identify any additional sanctions-related issues and take appropriate preventative or remedial measures.

Editorial comment: in other words, RTFW (read the website – the “F” is silent!) 🤦🏻‍♂️

UPDATE: As mentioned in the title, look at the Haverly Systems case from April, 2019.

Links:

OFAC Notice

Enforcement Information

Categories: Civil Monetary Penalties Enforcement Actions Sectoral Sanctions Ukraine sanctions

eric9to5

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