Cuba Sanctions

OFAC Enforcement Action: Cubasphere Inc (and an individual)

An Individual and Cubasphere Inc. Settle Potential Civil Liability for Apparent Violations of the Cuban Assets Control Regulations: An individual (the “Individual”), as well as Cubasphere Inc. (“Cubasphere”), on whose behalf the Individual also acted, have agreed to pay $40,320 to settle their potential civil liability for apparent violations of the Cuban Assets Control Regulations, 31 C.F.R. part 515 (CACR). The Individual and Cubasphere appear to have violated the CACR by engaging in unauthorized travel-related transactions to and within Cuba.

Specifically, the Individual and Cubasphere appear to have dealt in property in which Cuba or Cuban nationals had an interest in violation of § 515.201(b)(1) of the CACR by engaging in unauthorized Cuba travel-related transactions and by providing unauthorized Cuba travel services to 104 persons on four separate trips from on or about December 30, 2013 to on or about February 22, 2014. While acting as full-service tour operators, the Individual and Cubasphere received direct payments from groups and individuals for Cuba travel-related transactions, and handled itinerary planning, such as making reservations and payments for air travel, hotels, meals, and transportation within Cuba. The Individual and Cubasphere also procured Cuban visas and cover letters for travelers from U.S. religious organizations that cited the general license in § 515.566 of the CACR. However, the itineraries from the U.S. religious organizations did not match the itineraries that the Individual and Cubasphere offered their customers. The actual itineraries for the Cuba trips focused primarily on sightseeing and tourism activities rather than humanitarian or religious activities. Through correspondence with OFAC, the Individual and Cubasphere had prior notice that their conduct constituted, or likely constituted, apparent violations of the CACR, yet the Individual and Cubasphere continued to organize, plan, and carry out unauthorized Cuba travel-related transactions for more than a year.

The Individual and Cubasphere also took steps to urge clients to conceal their travel to, and unauthorized activities in, Cuba. The Individual and Cubasphere routinely suggested in writing that the customers should minimize their interactions with U.S. government officials upon their return to the United States, ensure that they have no receipts or schedules from their trip, and give false statements if they were asked about their activities in Cuba.

The base civil monetary penalty was $112,000, because the violations were not voluntarily self-disclosed, and occurred subsequent to agency notice.

Here is how OFAC arrived at the final settlement amount:

OFAC considered the following to be aggravating factors:

(1) the Individual appears to have willfully engaged in the apparent violations involving Cuba with knowledge that such transactions likely constituted violations of the CACR;

(2) the Individual appears to have knowingly facilitated unauthorized travel to Cuba by other persons that appears to have violated the CACR;

(3) given the seriousness of the apparent violations, the publicity given to apparent violations by the Individual, and the fact that the conduct would likely not have been licensed under then-existing OFAC licensing policy, the apparent violations resulted in significant harm to the CACR sanctions programs;

(4) Cubasphere did not maintain adequate OFAC sanctions compliance procedures at the time of the apparent violations; and

(5) neither the Individual nor Cubasphere appear to have taken any remedial actions in response to the apparent violations.

OFAC determined there were mitigating factors:

(1) neither the Individual nor Cubasphere has any prior sanctions history with OFAC, including receipt of a penalty notice or Finding of Violation in the five years preceding the earliest date of the apparent violations;

(2) the Individual is a natural person and the president of Cubasphere, a relatively small company with few employees; and

(3) the Individual cooperated with OFAC during post-investigation proceedings, including entering into a tolling agreement with OFAC.

And the lesson to be learned:

This enforcement action highlights the importance of compliance with the CACR for all travelers and travel service providers subject to the jurisdiction of the United States. OFAC continues to fully enforce the CACR, including restrictions on U.S. person travel-related transactions with respect to Cuba, which are generally prohibited under § 515.201(b)(1) and §§ 515.415 and 515.420 of the CACR, except as authorized by OFAC. Travel-related transactions to, from, or involving Cuba, that do not meet the full criteria and conditions of an OFAC specific or general license are prohibited. For more information regarding OFAC regulations, please go to: http://www.treasury.gov/ofac.

Link:

OFAC Enforcement Information

OFAC Enforcement Action: Hotelbeds USA

Hotelbeds USA, Inc. Settles Potential Civil Liability for Apparent Violations of the Cuba Assets Control Regulations, 31 C.F.R. part 515: Hotelbeds USA, Inc. (“Hotelbeds USA”), incorporated in Florida, is a U.S. subsidiary of Hotelbeds Group (“Hotelbeds”), headquartered in Mallorca, Spain.

Hotelbeds USA has agreed to pay $222,705 to settle potential civil liability for assisting 703 persons with Cuba-related travel service prior to agency notice in apparent violation of the Cuba Assets Control Regulations, 31 C.F.R. part 515 (CACR). Specifically, between on or about December 2011 and on or about June 2014, Hotelbeds USA provided unauthorized Cuba-related travel services to 703 non-U.S. persons to or through the United States in violation of § 515.201 of the CACR.

Hotelbeds USA knowingly sold hotel accommodations and gave its clients specific instructions to direct their payments for the Cuba-related transactions to an account in Spain, from which Hotelbeds USA was subsequently reimbursed.

Various Hotelbeds USA employees and supervisors appear to have had actual knowledge of, and participated in, the conduct that led to the apparent violations. The Cuba-related travel services occurred in part because of a reported misunderstanding and misinterpretation of the CACR that developed throughout Hotelbeds USA in which its personnel believed Hotelbeds USA could engage in Cuba-related transactions if the bookings involved only non-U.S. clients and payments were made to non-U.S. bank accounts. These same personnel were responsible for issuing invoices or sending emails that included disclaimers that payments for any Cuba-related services should not be sent to Hotelbeds USA or the United States. These personnel were also responsible for the process in which customers sent Cuba-related payments to Spain, and subsequently had revenues from such payments credited to Hotelbeds USA.

During the time the apparent violations were occurring, Hotelbeds USA personnel, including a senior manager, were aware that a U.S. financial institution had blocked a payment related to a Cuba-travel transaction and that OFAC had denied a specific license application filed by Hotelbeds USA seeking the unblocking of funds related to an unauthorized Cuba-travel transaction. The specific license denial generally outlined the CACR prohibitions and specifically articulated the CACR prohibitions regarding Hotelbeds USA’s specific license request.

Hotelbeds did not voluntarily self-disclose the violations, which occurred prior to agency notice. The base penalty is $353,500.

Here is how OFAC arrived at the final settlement amount:

OFAC considered the following to be aggravating factors:

1. Various Hotelbeds USA employees, including supervisory or managerial staff, were aware or had reason to know of, or participated in, the conduct that led to the apparent violations;

2. By processing the transactions constituting the apparent violations, Hotelbeds USA caused harm to the sanctions program objectives of the CACR;

3. Hotelbeds USA is a large and commercially sophisticated company; and

4. Despite being a large international travel service provider, Hotelbeds USA only had an informal compliance program that does not appear to have been commensurate with the risks associated with providing international travel services.

OFAC considered the following to be mitigating factors:

1. The Cuba-related transactions constituting the apparent violations appear to represent less than one percent of Hotelbeds USA’s overall business over the same period of time;

2. Hotelbeds USA has not been the subject of an OFAC penalty notice or finding of violation in the five years preceding the earliest date of the transactions giving rise to the apparent violations;

3. Hotelbeds USA took significant remedial action in response to the apparent violations, including by:

a. implementing an enhanced third-party IT solution with a sanctions screening tool;

b. dedicating additional resources to better ensure compliance with applicable sanctions laws; and

c. hiring and training additional compliance personnel; and

4. Hotelbeds USA provided substantial cooperation to OFAC by conducting an extensive internal investigation to determine the extent of the apparent violations at issue, producing records and information to OFAC in a clear and organized fashion, responding in a timely and efficient manner to all follow-up requests for information, and tolling the statute of limitation for 1,043 days.

And the lesson to be learned:

This enforcement action highlights the importance for both U.S. companies and foreign parents of U.S. subsidiaries to evaluate, verify, and audit existing compliance measures. U.S. companies and foreign parents of U.S. subsidiaries are encouraged to implement evolving and dynamic sanctions compliance programs that are commensurate with their sanctions risk, particularly those operating in the Cuba travel industry. U.S. companies and foreign parents of U.S. subsidiaries engaging in Cuba travel-related transactions should take note of and respond accordingly to sanctions-related warning signs, such as payments that are blocked or rejected by financial institutions for compliance or economic and trade sanctions purposes.

Link:

OFAC Enforcement Information

OFAC Enforcement Action: Expedia Group

Expedia Group, Inc. (“Expedia”) Settles Potential Civil Liability for Apparent Violations of the Cuban Assets Control Regulations: Expedia Group Inc., headquartered in Bellevue, Washington, on behalf of itself and its subsidiaries worldwide, has agreed to pay $325,406 to settle potential civil liability for assisting 2,221 persons with Cuba-related travel services prior to agency notice in apparent violation of the Cuban Assets Control Regulations, 31 C.F.R. part 515 (CACR). Specifically, between on or about April 22, 2011 and on or about October 16, 2014, Expedia dealt in property or interests in property of Cuba or Cuban nationals by assisting 2,221 persons — some of whom were Cuban nationals — with travel or travel-related services for travel within Cuba or between Cuba and locations outside the United States.

The apparent violations occurred because certain Expedia foreign subsidiaries lacked an understanding of and familiarity with U.S. economic sanctions laws and Expedia employees overlooked particular aspects of Expedia’s business that presented risks of noncompliance with sanctions. Specifically, electronically booked travel resulted from failures or gaps in Expedia’s technical implementations and other measures to avoid such apparent violations. With respect to at least one foreign subsidiary, Expedia failed to inform the subsidiary until approximately 15 months after Expedia acquired the subsidiary that it was subject to U.S. jurisdiction and law. Expedia was slow to integrate the subsidiary into the Expedia corporate family, including with respect to compliance with U.S. sanctions, and the subsidiary continued operating independently during the integration period.

The base penalty for the self-disclosed violations was $556,250. The Enforcement Information does not say if the violations were egregious, but notes that they occurred prior to agency notice. As explained in Monday’s post, the rules for Cuba-related penalties are different

The mitigating factors playing into the final penalty:

1. Expedia failed to exercise a minimal degree of caution or care in avoiding the conduct that led to the apparent violations. Moreover, based on the number of apparent violations, the length of time over which the apparent violations occurred, and the number of Expedia entities involved in the apparent violations, the apparent violations appear to have resulted from a pattern or practice of conduct.

2. The apparent violations harmed the sanctions program objectives of the CACR, based on the number of apparent violations and the length of time over which the apparent violations occurred.

3. Expedia is a sophisticated international travel service provider, providing global travel services to customers located worldwide.

And the mitigating factors:

1. Expedia has not received a penalty notice or Finding of Violation from OFAC in the five years preceding the earliest transaction giving rise to the apparent violations.

2. After discovering the apparent violations, Expedia implemented significant remedial measures to strengthen its U.S. economic sanctions compliance program throughout the Expedia corporate family, including domestic and foreign direct and indirect subsidiaries.

3. Expedia cooperated with OFAC’s investigation by submitting data analytics associated with the apparent violations, responding to OFAC’s requests for additional information, and entering to multiple tolling agreements.

And these were Expedia’s remediation steps:

Consistent with the settlement agreement with OFAC, Expedia has committed to enhancing its compliance procedures by ensuring that Expedia: (1) has a management team in place that is committed to compliance; (2) conducts regular risk assessments to ensure that Expedia’s internal controls appropriately mitigate its sanctions-related risks; (3) conducts regular testing and audits; and (4) provides ongoing sanctions compliance training throughout the Expedia corporate family. Additionally, Expedia has steadily increased its resources dedicated to compliance with U.S. sanctions, resulting in substantially more robust staffing and resources corporate-wide, and taken measures to increase compliance with U.S. sanctions, including enhanced screening methods and implementation of automated software restrictions.

And the lesson to be learned:

This case illustrates the benefits persons subject to the jurisdiction of the United States – including, with respect to OFAC’s Cuba sanctions, entities owned or controlled by U.S. persons – can realize by implementing corporate-wide compliance measures commensurate with their sanctions risks. U.S. companies can mitigate risk by conducting sanctions-related due diligence both prior and subsequent to mergers and acquisitions, and taking appropriate steps to audit, monitor, train, and verify newly acquired subsidiaries for OFAC compliance. U.S. foreign subsidiaries are subject to the CACR, and U.S. person parent companies may face potential exposure to civil monetary penalties vis-à-vis the actions of their foreign subsidiaries. Foreign acquisitions can pose unique sanctions risks, to which a U.S. person parent company should be alert at all stages of its relationship with the subsidiary.

Link:

OFAC Enforcement Information

The rules for Cuba-related CMPs are different.

From the Cubasphere settlement:

The Cuba Penalty Schedule, 68 Fed. Reg. 4429 (Jan. 29, 2003), sets a $2,000 penalty for the provision of travel services occurring “prior to agency notice,” plus $500 per person assisted, and a $15,000 penalty for the provision of travel services occurring “subsequent to agency notice,” plus $500 per person assisted.

3 for 1: OFAC announces 3 Cuba-related enforcement actions

Settlement Agreements between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Expedia Group, Inc.; Hotelbeds USA, Inc.; and Cubasphere, Inc. and an Individual

6/13/2019

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today announced a $325,406 settlement with Expedia Group, Inc. (“Expedia”).  Expedia, headquartered in Bellevue, Washington, on behalf of itself and its subsidiaries and affiliates worldwide, has agreed to pay $325,406 to settle its potential civil liability for providing Cuba-related travel services in apparent violation of the Cuban Assets Control Regulations, 31 C.F.R. part 515 (CACR).  Specifically, between on or about April 22, 2011 and on or about October 16, 2014, Expedia dealt in property or interests in property of Cuba or Cuban nationals by assisting 2,221 persons — some of whom were Cuban nationals — with travel or travel-related services for travel within Cuba or between Cuba and locations outside the United States.   These transactions appear to have violated § 515.201(b) of the CACR.  OFAC determined that the apparent violations were voluntarily self-disclosed to OFAC and occurred prior to agency notice.  

For more information, please visit the following web notice.

OFAC today separately announced a $222,705 settlement with Hotelbeds USA, Inc. (“Hotelbeds USA”).  Hotelbeds USA, incorporated in Florida, is a U.S. subsidiary of Hotelbeds Group, headquartered in Mallorca, Spain.  Hotelbeds USA has agreed to pay $222,705 to settle its potential civil liability for assisting persons with unauthorized Cuba-related travel services in apparent violation of the CACR.  Specifically, between the approximate dates of December 2011 and June 2014, Hotelbeds USA provided Cuba-related travel services to 703 non-U.S. persons in apparent violation of § 515.201(b) of the CACR.  OFAC determined that the apparent violations were not voluntarily self-disclosed to OFAC and occurred prior to agency notice.   

For more information, please visit the following web notice.

OFAC today also separately announced a $40,320 settlement with an individual (the “Individual”) and Cubasphere, Inc. (“Cubasphere”).  The Individual, as well as Cubasphere, on whose behalf the Individual also acted, have agreed to pay $40,320 to settle their potential civil liability for apparent violations of the CACR.  Specifically, the Individual and Cubasphere dealt in property in which Cuba or Cuban nationals had an interest, in apparent violation of § 515.201(b) of the CACR, by engaging in unauthorized Cuba travel-related transactions by assisting  104 persons on four separate trips to and within Cuba, from on or about December 30, 2013 to on or about February 22, 2014.  OFAC determined that the apparent violations were not voluntarily self-disclosed to OFAC and occurred subsequent to agency notice.

For more information, please visit the following web notice.

OFAC strongly encourages organizations subject to U.S. jurisdiction, as well as foreign entities that conduct business in or with the United States, U.S. persons, or using U.S.-origin goods or services, to review OFAC’s May 2, 2019 “A Framework for OFAC Compliance Commitments” for more information regarding best practices for developing, implementing, and updating risk-based sanctions compliance programs.    

Each of these enforcement actions will be discussed in more detail in separate posts. But that last paragraph – despite the violations occurring years ago – tells the story, as you’ll be able to tie these cases to the 10 “root causes” of inadequate sanctions compliance in the last 4 pages of the Framework document.

Links:

OFAC Notice

Expedia Enforcement Action

Hotelbeds Enforcement Action

Cubasphere Enforcement Action

State Department Cuba Press Guidance

United States Restricts Travel and Vessels to Cuba

MEDIA NOTE

OFFICE OF THE SPOKESPERSON

 / 

JUNE 4, 2019

WASHINGTON, DC

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Today, the United States took strong action to prevent U.S. travel to Cuba from enriching the Cuban military, security, and intelligence services by announcing new restrictions on authorized travel and vessels to the island.

Going forward, the United States will prohibit U.S. travelers from going to Cuba under the previous ‘group people-to-people educational’ travel authorization. In addition, the United States will no longer permit visits to Cuba via passenger and recreational vessels, including cruise ships and yachts, and private and corporate aircraft.

The United States holds the Cuban regime accountable for its repression of the Cuban people, its interference in Venezuela, and its direct role in the man-made crisis led by Nicolas Maduro. Despite widespread international condemnation, Maduro continues to undermine his country’s institutions and subvert the Venezuelan people’s right to self-determination. Empowered by Cuba, he has created a humanitarian disaster that destabilizes the region.

These actions are directly linked to the tourism industry, which has strong economic ties to the Cuban security, military, and intelligence sectors in Cuba. Veiled tourism has served to line the pockets of the Cuban military, the very same people supporting Nicolas Maduro in Venezuela and repressing the Cuban people on the island. In Cuba, the regime continues to harass, intimidate, and jail Cubans who dare to voice an opinion different from the one the regime wants them to have. The United States calls on the regime to abandon its repression of Cubans, cease its interference in Venezuela, and work toward building a stable, prosperous, and free country for the Cuban people.

For more information on the regulations on U.S. travel to Cuba and restrictions on vessels and aircraft, please refer to releases by the Departments of the Treasury and Commerce.

For further information, please contact WHA Press at WHA_Press@state.gov and EB Press at EB-A-PD-DL@state.gov.

Link:

State Department Media Note

Treasury Department Cuba Sanctions Changes Fact Sheet

Press Release: June 4, 2019

Contact: Treasury Public Affairs, (202) 622-2960

Treasury and Commerce Implement Changes to Cuba

Sanctions Rules

WASHINGTON – Today, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) unveiled amendments to the Cuban Assets Control Regulations (CACR) to further implement the President’s foreign policy on Cuba. These amendments complement changes to the Department of Commerce’s Bureau of Industry and Security (BIS) Export Administration Regulations (EAR), which Commerce is also unveiling today. These regulatory changes were announced on April 17, 2019 and include restrictions on non-family travel to Cuba.

“Cuba continues to play a destabilizing role in the Western Hemisphere, providing a communist foothold in the region and propping up U.S. adversaries in places like Venezuela and Nicaragua by fomenting instability, undermining the rule of law, and suppressing democratic processes,” said Treasury Secretary Steven Mnuchin. “This Administration has made a strategic decision to reverse the loosening of sanctions and other restrictions on the Cuban regime. These actions will help to keep U.S. dollars out of the hands of Cuban military, intelligence, and security services.”

These actions mark a continued commitment towards implementing the National Security Presidential Memorandum signed by the President on June 16, 2017 titled “Strengthening the Policy of the United States Toward Cuba.” These policies continue to work to channel economic activities away from the Cuban military, intelligence, and security services. The Treasury changes will take effect on June 5, 2019 when the regulations are published in the Federal Register.

For the Treasury regulations, which can be found at 31 Code of Federal Regulations (CFR) part 515, see here. For the Commerce regulations, which can be found at 15 CFR parts 730-774, see here. Major elements of the changes in the revised regulations include :

Ending Group People-to-People Travel

 In accordance with the newly announced changes to non-family travel to Cuba, OFAC is amending the regulations to remove the authorization for group people- to-people educational travel. OFAC’s regulatory changes include a “grandfathering” provision, which provides that certain group people-to-people educational travel that previously was authorized will continue to be authorized where the traveler had already completed at least one travel-related transaction (such as purchasing a flight or reserving accommodation) prior to June 5, 2019. Please note that travel-related transactions continue to be permitted by general licenses for certain categories of travel and certain authorized export transactions. For more on authorized travel to Cuba, please see below.

Ending Exports of Passenger Vessels, Recreational Vessels, and Private Aircraft

 BIS, in coordination with OFAC, is amending the EAR to make passenger and recreational vessels and private and corporate aircraft ineligible for a license exception and to establish a general policy of denial for license applications involving those vessels and aircraft.

Link:

Fact Sheet