There is no question that OFAC continues to dominate the enforcement landscape this year.  OFAC has provided plenty of warning and notice to global companies, especially those in the manufacturing and industrial sectors. 

OFAC has exercised its prosecutorial discretion to underscore the risks global companies face in their distribution channel, i.e. use of third party distributors, and in its supply chain.  These twin risk areas were underscored again in OFAC’s recent Framework for Sanctions Compliance Programs. 

To make matters a little more dangerous, OFAC has made it abundantly clear that much more is required than a “simple” compliance screening.  In fact, OFAC has explained the elements of an effective sanctions compliance program, and the importance of one of those five elements, internal controls.

To illustrate OFAC’s perspective, the recent settlement in the MID-SHIP Group, Port Washington, New York, underscores the importance of responding to red flags of potential sanctions violations.  (Settlement Agreement HERE).

MID-SHIP agreed to pay $871,837 to settle potential civil liability for five sanctions violations, occurring between February and November 2011.

MID-SHIP processed five electronic funds transfers (approximately $472k in value) for payments involving a block vessel on the Specially Designated National list.

In September 2008, OFAC designated the Islamic Republic of Iran Shipping Lines (IRISL) under the SDN list.  On the same day, OFAC identified more than 100 vessels owned or controlled by IRISL and listed their names and International Maritime Organization (IMO) numbers on the SDN List.

In February and April 2010, MID-SHIP’s subsidiaries in China and Turkey negotiated three charter party agreements between a number of third parties to transport goods from foreign ports to other foreign ports.  The parties nominated two separate IRISL vessels to perform the shipping tasks.

MID-SHIP possessed multiple documents identifying the specific vessels (M/V Haadi and M/V Adrian) and their respective IMO numbers.  By the time MID-SHIP attempted to process the bank transactions, both ships were specifically identified on the SDN list.

OFAC specifically cited MID-SHIP’s failure to respond to identified red flags indicating that the transactions were prohibited under OFAC’s rules.  On one occasion, a MID-SHIP senior manager discussed receiving an electronic funds transfer in non-US Dollar currency as a way to secure payment after a financial institution held the transaction due to the listing of a vessel name in the remittance field of a transaction.  MID-SHIP managerial personnel were also aware that financial institutions had rejected two transactions for administrative, security and/or compliance issues.

OFAC noted that MID-SHIP acted with reckless disregard of its OFAC compliance requirements, and MID-SHIP managers knew of, and participated in, the conduct in violation of OFAC rules.

On the mitigation side of the equation, OFAC noted that the transactions involved less than 0.5 percent of MID-SHIP’s total transactions during the relevant time period.  MID-SHIP also undertook remedial measures to improve its compliance program.

Specifically, MID-SHIP appointed an OFAC Compliance Officer; provide training to employees; regularly published OFAC compliance statements to all MID-SHIP officers; advised MID-SHIP shipbrokers to include appropriate contractual representations in each charter party negotiated; and screen every vessel and party to a wire transfer against the SDN List.