Enforcement Actions

You’d think I wouldn’t have to write about how, if you don’t want to run afoul of US laws and regulations, you actually have to read them… but I did. I can’t tell you how many times, when I go overseas, I get complaints about how complex it all is.

Yeah, but… it is what it is.

The article touches on 3 sets of prominent examples: the CAPTA List, Section 311 of the USA PATRIOT Act and the Special Measures imposed by FinCEN, and the recent jostling over a subpoena issued to three Chinese banks (under the threat of penalties under Section 319 of the USA PATRIOT Act).

Read The Long Arm of the Law here… bottom line is that you can’t avoid the landmines if you don’t attempt to find where they are.

This one’s pretty cut and dried… a $343,315 fine for accepting the business of collecting the $5,730,680.33 debt from a company on the SDN List, and for actually successfully collecting $4,043,174.25 of it. The company did not voluntarily self-report, but the two violations were considered a non-egregious case. The resulting settlement was reduced from the $590,282 base penalty.

Here is what OFAC considered in its investigation:

The following were considered aggravating factors:

  • ATCI did not undertake any meaningful analysis or otherwise seek confirmation from OFAC that assignment of the SDN’s debt and acceptance of payment from the Soho Mall Trust was permissible under existing authorizations; and
  • ATCI is a subsidiary of a sophisticated global trade credit insurance and collections conglomerate.

The following were considered mitigating factors:

  • ATCI 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; and
  • ATCI voluntarily conducted a full internal review of the underlying facts and circumstances, provided documents from its internal review to OFAC in the course of the investigation, and took voluntary remedial action to address the cause of the Apparent Violations. ATCI also agreed to undertake certain compliance commitments to ensure that its OFAC sanctions compliance program remains strong over the next several years.

and the lesson we should learn:

This enforcement action draws particular attention to transactions related to the assignment of an SDN’s debt and highlights the importance of obtaining a specific license before engaging in activity that is not otherwise authorized.

One curious thing is that ATCI didn’t get credit for the fact that the debt collection may have been licensable: the SDN was in liquidation when ATCI took on the assignment. I know that OFAC has mentioned “could have been licensed” in other cases.

Also interesting is OFAC’s focus on some of these smaller cases. It used to be that the focus was on larger and more egregious patterns of behavior. When you really get down to it, this was a single transaction they got whacked for – maybe because they were a sub of a large firm, they got penalized just to make a point?

Link:

Enforcement Information

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

The firm, which is in the truck business, agreed to a $1,709,325 settlement for 63 apparent violations of the Iranian Transactions and Sanctions Regulations (ITSR), which were voluntarily self-disclosed and non-egregious violations. The base penalty is therefore $2,713,214 for selling $5,426,428 worth of products. The violations occurred between October 2013 and February 2015.

Here’s the “what” of what happened:

In June and October 2014, a DAF dealer based in Hamburg, Germany, placed two orders with DAF via its wholly owned subsidiary in Germany (“DAF Germany”) for 51 trucks. Even though the final paperwork associated with these transactions identified the ultimate end-customer as an unnamed party in Russia, the Hamburg-based dealer resold the trucks to a buyer in Iran. A former employee/manager of DAF Germany had, at a minimum, reason to know that the trucks were intended for Iran rather than for Russia. The Hamburg-based dealer initially requested a price quotation from, and then placed an order with, DAF Germany for trucks with particular specifications for an Iranian company located in Iran. The then-employee/manager of DAF Germany informed the Hamburg-based dealer that DAF Germany could not sell trucks destined for Iran. That same day, the Hamburg-based dealer submitted a pricing request for a new order of trucks purportedly destined for a customer or end-user in Russia with virtually identical specifications as the earlier order intended for Iran. Although the new pricing request was submitted on the same day on which DAF Germany refused the Iran-related purchase order and the proposed purchase involved the same types of trucks, with the same specifications, and the same delivery point as those included in the Iran-related purchase order, DAF Germany — including the former employee/manager — failed to conduct an adequate inquiry and processed the order.

Separately, DAF Trucks Frankfurt, a directly owned DAF dealer, received two trucks from DAF in October 2013 that were intended for resale to a company in Germany. After the original buyer cancelled the order, DAF Trucks Frankfurt sold the two trucks to a trader based in the Netherlands, which in turn resold the trucks to two buyers in Iran. DAF’s investigation showed that an employee of DAF Trucks Frankfurt knew or had reason to know that the two trucks sold to the Netherlands-based trader were intended for resale to buyers in Iran. Among other things, the Netherlands-based trader sent drafts of its invoices, which referenced the buyers in Iran, to a DAF Trucks Frankfurt employee.

Additionally, in June 2014, DAF sold 10 trucks to an authorized DAF sales dealer located in Sofia, Bulgaria. The Bulgarian authorized dealer subsequently sold and delivered the 10 DAF trucks to an affiliated rental company, which in turn sold the 10 trucks to a buyer in Iran. The Bulgarian authorized dealer’s parent company disclosed that a used truck sales manager employed by DAF introduced that authorized dealer to the Iranian buyers of the 10 trucks and knew or should have known that the trucks were intended for Iran prior to introducing the parties. A DAF investigation found that the sales manager ignored warning signs indicating the trucks were destined for Iran and failed to take reasonable steps in response to the warnings.

And OFAC considered the following factors in determining the penalty:

OFAC considered the following to be aggravating factors:

  1. DAF personnel — specifically, employees in DAF Germany and DAF Trucks Frankfurt and a DAF used trucks sales manager — failed to exercise a minimal degree of caution or care when they ignored warning signs regarding potential sales involving OFAC-sanctioned countries and allowed goods to be sold to customers that they knew or had reason to know intended to re-sell the goods to buyers in Iran;
  2. in each case, a DAF employee had knowledge or reason to know the goods were being re-sold to buyers in Iran;
  3. DAF’s exportation of goods from Germany to Iran conferred millions of dollars in economic benefits on Iran; and
  4. PACCAR, DAF’s parent company, is a large sophisticated entity that engages extensively in international business.

OFAC considered the following to be mitigating factors:

  1. neither PACCAR nor DAF have 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. at the time of the apparent violations, DAF possessed and maintained a trade sanctions compliance program that included contractual prohibitions on dealers and service partners re-selling DAF products in violation of U.S. trade sanctions;
  3. upon learning of the apparent violations, DAF took remedial action by conducting an internal investigation regarding this matter; terminating employees involved in some of the apparent violations; cancelling delivery of 20 trucks that were part of an order for a customer that appeared to have allowed other DAF trucks to be resold to buyers in Iran; providing in-person compliance training to DAF subsidiaries on an annual basis from 2015 onward; and implementing enhanced trade compliance controls — including a policy preventing direct sales agreements except for sales to final end customers — in an effort to prevent similar apparent violations from recurring; and
  4. PACCAR and DAF cooperated during the course of OFAC’s investigation, including by submitting a detailed voluntary self- disclosure; thoroughly and promptly responding to OFAC’s requests for information and by entering into a tolling agreement to extend the statute of limitations.

Some details on PACCAR’s remedial efforts:

Additionally, PACCAR and DAF have confirmed to OFAC that they have terminated the apparently violative conduct and have taken the following steps to minimize the risk of recurrence of similar conduct in the future:

• DAF hired a full-time Compliance Director who reports to DAF’s General Counsel and Chief Compliance Officer, and is responsible for developing compliance policies and procedures, advising employees about compliance, monitoring internal reports of compliance concerns and ensuring appropriate follow-up, and assisting with compliance investigations and audits;

• DAF updated its EU Trade Restrictions Compliance Manual to strengthen controls on dealer sales that might violate U.S. or other applicable trade restrictions, including by requiring more thorough end-customer and transaction due diligence;

• DAF implemented a policy that only allows direct sales agreements for sales to final end- customers and imposed a contractual ban on the resale of new trucks acquired under a direct sales agreement in the absence of an approved exception;

• DAF sent a letter to all dealers in its dealer network reminding them of their obligations to comply with U.S. and other trade sanctions and received certifications from each of its dealers regarding their compliance with all applicable trade sanctions; and

• DAF has made trade sanctions compliance training an annual requirement and has conducted such trainings at DAF’s headquarters and subsidiaries since 2016.

And the lesson you should learn from this:

This enforcement actions highlights the benefits U.S. companies can realize in conducting sanctions-related training and in taking appropriate steps to audit and monitor foreign subsidiaries for OFAC compliance. U.S. parent companies can mitigate risk to sanctions exposure by proactively establishing and enforcing a robust sanctions compliance program. Foreign subsidiaries of U.S. companies are subject to the ITSR, and their U.S. parent companies may face potential exposure to civil monetary penalties for the actions of such entities.

Link:

Enforcement Information

FOR IMMEDIATE RELEASE
  August 9, 2019
  Contact: DEA Public Affairs
 

Press Release

 

Lebanese businessman tied by Treasury Department to Hezbollah is sentenced to prison for money laundering scheme involving the evasion of U.S. sanctions

 

WASHINGTON – The operator of a network of businesses in Lebanon and Africa, whom the United States Department of the Treasury designated as a financier of Lebanon-based terrorist group Hezbollah, was sentenced to five years in prison and ordered to forfeit $50 million by U.S. District Judge Reggie B. Walton of the District of Columbia.

 

Kassim Tajideen, 63, had previously pleaded guilty to one count of conspiracy to launder monetary instruments in furtherance of violating the International Emergency Economic Powers Act (IEEPA). In 2009, the U.S. Department of the Treasury designated Tajideen as a Specially Designated Global Terrorist based on his tens of millions of dollars of financial support of Hezbollah. The designation prohibited Tajideen from being involved in, or benefiting from, transactions involving U.S. persons or companies without a license from the Department of the Treasury.

 

“This defendant knowingly violated sanctions and put our nation’s security at risk,” said Assistant Attorney General Brian A. Benczkowski of the Criminal Division.  “His sentencing and the $50 million forfeiture in this case are just the latest public examples of the Department of Justice’s ongoing efforts to disrupt and dismantle Hezbollah and its support networks.”

 

Tajideen’s case falls under the United States Drug Enforcement Administration’s Project Cassandra, which targets Hezbollah’s global criminal support network, which operates as a logistics, procurement and financing arm for Hezbollah. This investigation and others are part of the Department of Justice’s Hezbollah Financing and Narcoterrorism Team. The HFNT was formed in January 2018 to ensure an aggressive and coordinated approach to prosecutions and investigations, including Project Cassandra cases, targeting the individuals and networks supporting Hezbollah. Comprised of experienced international narcotics trafficking, terrorism, organized crime, and money laundering prosecutors and investigators, the HFNT works closely with partners like the DEA, the Department of the Treasury, and the Federal Bureau of Investigation, among others, to advance and facilitate prosecutions of Hezbollah and its support network in appropriate cases.

 

“This is the latest example of the DEA’s success against Hezbollah’s global criminal support network and our commitment to interagency collaboration in combatting the overall threat posed by this transnational criminal organization,” said Acting Special Agent in Charge of DEA’s Special Operations Division Michael J. Machak.

 

“Today’s sentencing highlights our efforts to prosecute those who violate sanctions meant to stem the flow of money to terrorists groups,” said U.S. Attorney Jessie K. Liu for the District of Columbia. “Our message to those who violate sanctions is that you will be found, and you will be prosecuted to the full extent of the law.”

 

According to the statement of facts signed by Tajideen in conjunction with his plea, after his designation, Tajideen conspired with at least five other persons to conduct over $50 million in transactions with U.S. businesses that violated these prohibitions. In addition, Tajideen and his co-conspirators knowingly engaged in transactions outside of the United States, which involved transmissions of as much as $1 billion through the United States financial system from places outside the United States.

 

This case was investigated by DEA SOD’s Counter Narcoterrorism Operations Center and the DEA New Jersey Field Division, with support from the Customs and Border Protection’s National Targeting Center/Counter Network Division, the U.S. Treasury Department’s Financial Crimes Enforcement Network and Office of Foreign Assets Control, the Criminal Division’s Office of International Affairs, and the Counterintelligence and Export Control Section of the National Security Division.

 

The case was prosecuted by Trial Attorney Joseph Palazzo of the Money Laundering and Asset Recovery Section and Assistant U.S. Attorneys Thomas A. Gillice, Luke Jones, Karen Seifert and Deborah Curtis and Special Assistant U.S. Attorney Jacqueline L. Barkett of the U.S. Attorney’s Office for the District of Columbia.

FOR IMMEDIATE RELEASE
July 23, 2019
Contact: Bryan Hubbard
(202) 649-6870
 

OCC Issues Consent Order of Prohibition and $50,000 Civil Money Penalty Against Former General Counsel of Rabobank N.A.

WASHINGTON—The Office of the Comptroller of the Currency (OCC) today announced the issuance of a consent order of prohibition and $50,000 civil money penalty against Daniel Weiss, the former General Counsel of Rabobank, N.A., Roseville, Calif. (Bank).

The consent order prohibits Mr. Weiss from participating in the affairs of any federally insured depository institution and assesses a $50,000 civil money penalty for violations of law and unsafe or unsound practices alleged in the notice of charges (notice) issued on March 25, 2019.

The notice alleges that Daniel Weiss, as General Counsel of the Bank, participated in the continuous concealment of a third party report assessing the Bank’s Bank Secrecy Act program from the OCC in violation of 12 USC 481 and made false statements to the OCC in violation of 18 USC 1001.

On February 7, 2018, the Bank pled guilty to conspiracy to obstruct an OCC examination in violation of 18 USC 371 and 1517 in the U.S. District Court in the Southern District of California, and agreed to pay a forfeiture in the amount of $368,701,259 and a civil money penalty to the OCC in the amount of $50 million, based in part on the violation of 12 USC 481.

Links:

OCC Notice

Consent Order

Notice of Charges