Sanctions Enforcement – Facilitation Violations
As sanctions enforcement continues to mature, the permutations of risks become more complex. One area where companies have significant exposure is when they can be accused of “facilitation.” It is a unique risk for logistics companies and other professionals who assist companies in moving goods across borders.
An individual cannot facilitate a transaction with a person or entity sanctioned by the US government. A violation carries a potential criminal penalty of ten years imprisonment and a significant fine.
OFAC is responsible for managing sanctions and embargoes against individual, entities and countries. OFAC maintains the list of Specially Designated Nationals (SDN) list. Broader sanctions prohibit transactions between a US person and any person or entity in Iran, North Korea, Sudan and Syria.
A facilitation offense occurs when (1) a non-US person assists a prohibited transaction with the intent evade sanctions; (2) altering policies or practices to have a foreign affiliate to conduct an otherwise prohibited transaction; (3) enabling non-US persons to perform functions that would be prohibited if conducted by a US person.
At the heart of a facilitation offense is the intent standard of “known or should have known” that such conduct was occurring and prohibited by law or regulation. Like the anti-corruption area, facilitation requires a due diligence review for potential red flags of potential transactions and parties to assist in the determination.
A common list of red flags revolving around “facilitation” includes:
- Customers who refuse to provide requested information about an intended use of a product or the identity of the end user;
- Destination locations that have no reasonable use of a specific product;
- Customers who propose unusual payment arrangements, offer large cash payments, and are unwilling to confirm details of the proposed transactions, including delivery arrangements or delivery routes.
A US parent company has to be especially careful when a foreign affiliate conducts transactions outside the United States to ensure that the foreign affiliate is not facilitating a transaction on behalf of the US parent. If the foreign affiliate changes its procedures for a specific transaction to permit an otherwise prohibited transaction is by definition – a screaming red flag.
Logistics companies or logistic functions within companies are high-risk operations. The nature and extent of risks is constantly shifting and new dangers develop almost weekly. Compliance professionals have a tough assignment – keep abreast of changes in sanctions and export controls, and make sure that logistics professionals are kept abreast of the changes.
Trade compliance requires specific procedures for elevating potential red flags and prioritizing use of resources. Given the number of transactions, a compliance program can quickly be overwhelmed with suspect transactions.
Every contract or purchase order has to include specific language and certifications addressing OFAC compliance. Third parties (e.g. local transport companies) who assist companies have to be audited on a regular basis.
Companies have to verify shipping and container numbers, the ultimate consignee, and end-user destination information on all commercial documents such as invoices, bills of lading or air waybills.