OFAC Enforcement Actions

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has been extremely active in enforcing American economic sanctions on foreign nationals in the past year. Ever since the Russian invasion of Ukraine, the breadth of the sanctions imposed by the President of the United States on foreign nationals who pose a threat to the nation’s interests and national security has expanded. Now, far more parties are under U.S. economic sanction than only a few years prior, and enough time has passed for OFAC investigations to run their course.

To date, nine of those investigations have escalated into OFAC enforcement actions that ended with civil monetary penalties in 2023. Several of them are worth delving into.

1. British American Tobacco Settles OFAC Claim That It Violated Sanctions on North Korea for $508 Million

By far the largest and most egregious case involving the violation of sanctions to end in 2023 concerned the British American Tobacco Company (BAT). According to OFAC, BAT established a joint venture with a North Korean company in 2001 to manufacture and sell BAT cigarettes in North Korea. In 2007, to avoid being associated with North Korea, but to still benefit from the business opportunity, BAT sold its stake in the venture to a company in Singapore that was effectively owned by BAT. Proceeds from sales by the joint venture in North Korea still made their way to BAT through a complex system of transactions.

In total, U.S. financial institutions processed 228 payments totaling over $250 million related to the joint venture in North Korea.

After investigating, OFAC imposed the maximum civil monetary penalty possible under its enforcement guidelines (31 C.F.R. Part 501 Appendix A) and the two authorizing sanctions laws: The Weapons of Mass Destruction Proliferators Sanctions Regulations (31 C.F.R. Part 544) and the North Korea Sanctions Regulations (31 C.F.R. Part 510).

Additionally, OFAC made a criminal referral to the U.S. Department of Justice (DOJ) for further investigation, as BAT’s conduct amounted to what the agency referred to as a “conspiracy” to evade sanctions that triggered enough aggravating factors to warranted such a harsh penalty.

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2. Microsoft Settles Multiple Alleged Violations for Nearly $3 Million

Microsoft and its subsidiaries settled OFAC allegations against them for $2,980,265.86, related to the sale of software and services to sanctioned parties across the world. According to OFAC, there were 1,339 of these transactions between Microsoft and sanctioned parties in:

• Cuba
• Iran
• Syria
• Russia
• Crimea

These transactions involved U.S.-based servers and software systems and totaled over $12.1 million in sales. However, they were generally done through third-party sales associates, meaning that Microsoft often did not have adequate information about their end customer to determine whether they were sanctioned or not. In some cases, OFAC found evidence that these sales associates, particularly those in Russia, intentionally altered the identities of the end customers in order to complete the transaction without Microsoft learning that it was indirectly dealing with a sanctioned entity.

These mitigating circumstances, along with the fact that Microsoft voluntarily self-disclosed the apparent violations, led OFAC to reduce the civil monetary fine to only a quarter of the transactional value that Microsoft obtained from the sanctions violations.

In imposing the fine, OFAC stressed the risks of doing business with end users through sales intermediaries, as well as the importance of enacting sufficient OFAC compliance mechanisms to ensure that the domestic company knows who they are doing business with.

3. Wells Fargo Settles OFAC Enforcement for $30 Million

Wells Fargo, the major U.S. bank, settled an OFAC enforcement action related to violations of three sanctions programs for $30 million.

According to OFAC’s press release, Wells Fargo and its predecessor, Wachovia Bank, provided trade insourcing software to an unnamed European bank, which then used the software to complete transactions involving sanctioned accountholders at the bank. The acquisition of Wachovia by Wells Fargo led to confusion and a seven-year delay between the European bank’s use of the software for transactions involving sanctioned parties and Wells Fargo executives stepping in to stop the practice. They then voluntarily disclosed the violation to OFAC, cut the European bank off from the software, and conducted an internal investigation.

During the time that it was in use, Wells Fargo’s software facilitated 124 transactions involving sanctioned parties, totaling over $532 million. These transactions were in violation of the Iranian Transactions and Sanctions Regulations (31 C.F.R. Part 560), Syrian Sanctions Regulations (31 C.F.R. Part 542), and the since-repealed Sudanese Sanctions Regulations (31 C.F.R. Part 538).

The amount involved made OFAC label the violations as “egregious,” but mitigating circumstances drastically reduced the civil monetary penalty that it ended up imposing.

4. OFAC Settles Corporate and Individual Sanctions Violations Related to Iran for $3.5 Million

A cosmetic company based in California, called Murad, settled an OFAC enforcement action for $3,334,286 while one of its senior executives paid an additional $175,000 for violating sanctions related to Iran.

According to OFAC’s press release, the case involved an eight-year conspiracy to sell over $11 million of cosmetic products to Iran in violation of the Iranian Transactions and Sanctions Regulations (31 C.F.R. Part 560). Much of the work was done by the individual executive, who is unnamed in the press release. This executive signed exclusive sales agreements with both an Iranian distributor and a distributor based in the United Arab Emirates (UAE). The company applied for an OFAC license to be exempted from OFAC’s sanctions on Iran, but it was not granted. Nevertheless, it went ahead with the business deals.

Circumstances grew more complex when Murad was acquired by another U.S. company, Unilever US. The risky business dealings in Iran, however, slipped through Unilever’s due diligence efforts during the merger. It was only two months after the acquisition had closed that Unilever learned of its business dealings in Iran. The executive behind them, who was still with the company after the merger, continued to press its UAE distributor to sell the company’s products in Iran. The transactions only stopped when Unilever’s bank inquired about the suspicious circumstances and Unilever took more aggressive action to prevent the UAE distributor from doing business inside Iran.

In all, the conspiracy involved at least 62 batches of exports totaling over $11 million in products. Mitigating factors that reduced the civil monetary penalty agreed to in the settlement included:

• The benign nature of the goods sold
• The cooperation by the company and the individual executive, including the executive’s agreement to extend the statute of limitations
• The fact that the executive had left the company and no longer engages in international business

5 Frequently Asked Questions About OFAC Enforcement Actions and Oberheiden P.C.

OFAC Defense Lawyers at Oberheiden P.C.

As these cases show, the penalties for violating OFAC sanctions can be extremely high. However, there are also numerous mitigating factors that can significantly reduce the penalties, if you can present evidence in support of them.

The OFAC compliance and sanctions lawyers at Oberheiden P.C. have defended numerous American individuals and companies against OFAC enforcement actions just like these. With their experienced guidance and vigorous advocacy, suspects and defendants have invoked their rights and mitigated the penalties imposed by this often overlooked federal law enforcement agency.

Call Oberheiden P.C. at (888) 680-1745 or contact them online.