OFAC’s aggressive enforcement program continues to bear fruit.  The latest settlement involved GE and three of its subsidiaries, which agreed to pay $2.7 million for 289 alleged violations of the Cuba Sanctions Program.  (Copy of Settlement Notice Here).  So far this year, OFAC has settled 22 cases for a total of approximately $1.28 billion (Statistics Here).

Between 2010 and 2014, the GE companies accepted payment from The Cobalt Refinery Company (“Cobalt”) for goods and services provided to a Canadian customer of GE.  Cobalt has been listed as a Specially Designated National (“SDN”) since 1995.  GE’s Canadian customer had a long-standing relationship with the Cuban mining industry through various partnerships and joint ventures with the Cuban government.  Cobalt is one of three entities owned by a public joint venture between GE’s Canadian customer and the Cuban government.  Since 1996, the GE companies maintained and renewed on at least 18 occasions, this customer relationship despite the obvious sanctions risks.

In 2014, GE discovered that for at least four years, from 2010 to 2014, GE received numerous payments directly from Cobalt for invoices issued to GE’s Canadian customer.  GE contracted with the Canadian customer, sent all the invoices to the Canadian customer, Cobalt paid GE directly in more than 65 percent of the total transactions.

GE specifically approved Cobalt as a third-party payer and failed to recognize the significant and widely-published relationship between Cobalt and their Canadian customer.  OFAC also noted the GE companies did not conduct “sufficient diligence” into their customer’s activities.  The GE companies deposited all checks received from Cobalt into GE’s bank account at a Canadian financial institution.  The GE companies’ sanctions screening software never alerted on Cobalt’s name.

In total, the GE companies received 289 checks directly from Cobalt totaling approximately $8 million.  The GE companies provided to their Canadian customer goods and services which ultimately benefited Cobalt, which is co-located with GE’s Canadian customer.

Under the Sanctions Enforcement Guidelines, GE voluntarily disclosed the alleged violations, which constituted a non-egregious case.  The base civil monetary penalty was approximately $3.3 million.  The ultimate settlement amount reflected OFAC’s consideration of the General Factors under the Enforcement Guidelines.

OFAC identified the following aggravating factors:

• The GE companies failed to take reasonable care with respect to their US economic sanctions violations, particularly given GE’s commercial sophistication;

• The GE companies’ actions caused substantial harm to the objectives of the Cuba sanctions program by conducting a large volume of high-value transactions directly with a Cuban company;

• GE’s disclosures created substantial uncertainty about the totality of the benefits conferred to a Cuban company on the SDN List, and GE’s disclosures were not made in a clear and organized manner and placed significant burdens on OFAC staff to review and understand the materials.

On the mitigating side of the equation, OFAC cited:

• GE did not suffer any violations for the past five years;

• GE identified the violations by testing and auditing its compliance program.  GE implemented remedial measures and new processes to enhance its sanctions compliance procedures, including the development of a training video using this case as an example.

• GE cooperated with the OFAC investigation and agreed to several tolling extensions.

As noted by OFAC, the GE enforcement action underscores the risks to US companies from (1) accepting payments from third parties; and (2) conducting transactions in foreign currency at a foreign financial institution.  In addition, the GE enforcement action highlights the importance of conducting appropriate due diligence on customers and counter-parties when initiating and renewing customer relationships.