Prosecutors and regulators are scouring their files for enforcement actions – criminal and civil – for violations of the 2014 Ukraine-Russia Sanctions Program.  The message being sent is clear – do not violate any sanctions against Russia, whether the initial round of restrictions in 2014 in response to Russia’s annexation of Crimea, or the broader sanctions recently implemented in response to Russia’s broader invasion of Ukraine.

A further example of this enforcement environment occurred last week when OFAC announced a settlement with S&P Global (SPG) for violations of the Ukraine-Russia Sanctions Program.  S&P’s violations occurred in the context of an acquisition of Petroleum Industry Research Associates, Inc.  (PIRA).  During the Fall of 2016, SPG integrated PIRA’s business, including its ongoing contracts with JSC Rosneft (Rosneft) into SPG’s operations.  Rosneft, Russia’s largest oil company, was placed on OFAC’s Sectoral Sanctions Identification (SSI) List on July 16, 2014. Under Directive 2, all transactions or other dealings in new debt of Rosneft cannot exceed 90 days maturity.

SPG’s violations occurred when SPG and PIRA reissued and redated multiple invoices and thereby extended “credit” to Rosneft in violation of OFAC’s debt restrictions against companies included on the OFAC SSI List.  After reissuing four invoices to extend the original payment dates, SPG accepted payments for these invoices totaling $82,500 from Rosneft.

In August 2015, prior to SPG’s acquisition, PIRA issued an invoice for $82,500 to Rosneft related to an ongoing subscription service that offered bespoke advisory services and market analysis.  The original payment due date was October 18, 2015.  Rosneft attempted to make payment for this invoice in May 2016.

PIRA’s bank rejected the payment.  Rosneft notified PIRA of the rejection on June 2, 2016, noting that the rejection occurred because of the “sanctions program,” and Rosneft would try again.  Later that month, Rosneft attempted the payment again.  PIRA’s bank requested additional information from Rosneft but Rosneft did not respond to the bank’s inquiry.

To address the situation, PIRA requested that Rosneft pay the amount due by check.  Rosneft acknowledged to PIRA that the payments were “returned by the bank because of sanctions policy.”  Rosneft asked PIRA to contact its bank.

Subsequently, SPG employees (former PIRA employees now after the acquisition) reissued and re-dated PIRA’s August 2015 invoice with a new date of August 26, 2016, 374 days after the invoice was originally issued.  SPG management indicated the importance of timely payment, warning (prophetically) that “when the payment is made against an old invoice (as recent ones were), the bank may perceive that to be ‘extending credit’ to a Russian company, which we cannot do by law.” In October 2016, Rosneft paid S&P Global $55,000 by wire transfer in partial payment of the original $82,500 invoice.

During the next month, on November 22, 2016, S&P Global reissued the original August 2015 invoice once again, 462 days after the invoice for the debt was originally issued — creating two “new” invoices of $13,750 each, both with payment due upon receipt. Rosneft sent a $13,750 payment for one of these two revised invoices on December 29, 2016.

As of August 2017, Rosneft still had not paid the outstanding invoice amount of $13,750 to S&P Global. S&P Global then reissued and re-dated a fourth invoice for Rosneft, dated September 5, 2017, 749 days after PIRA had issued the original invoice. On October 6, 2017, Rosneft finally paid the last amount due of $13,750.

Each of the above-recited transactions violated Directive 2’s prohibition on issuance of new debt with a maturity period for longer than 90 days. 

SPG did not voluntarily disclose the conduct.  As noted by OFAC, SPG failed to exercise a minimal degree of caution or care by re-dating four invoices to extend the applicable due dates.

SPG implemented remedial measures to enhance its compliance program, creating more robust training, adding periodic testing to invoices involving SSI List entities, and adding staff to manage sanctions issues.

OFAC noted that the enforcement action underscores the importance of US companies conducting due diligence and actively extending compliance programs to newly acquired businesses and their employees.  After a company acquires another company, the acquiring company should “closely oversee” their new business elements to identify any additional sanctions-related issues.