U.S. Office of Foreign Assets Control (OFAC)

Once again, the Office of Foreign Assets Control (OFAC) is the top of the news. With the payment by mega-bank, J.P. Morgan Chase, of $88 million to OFAC for violations of the Cuban Assets Control Regulations, OFAC has flexed its enforcement muscle.  Besides banks and other financial institutions, companies involved in the business of import, export, logistics, and international trade are targets of OFAC investigations and penalties.  There is a common theme to those investigations and penalties – somehow doing business with Iran or Cuba.

The Office of Foreign Assets Control (OFAC) of the US Department of the Treasury administers and enforces economic and trade sanctions based on the foreign policy and national security goals of the United States against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States.  So, for example, if there is an embargo of a country, virtually no business transactions may take place with the government, persons, or companies of that country (for example, Cuba or Iran). If a certain government regime is on an OFAC list, the prohibitions of doing business are with persons connected to that regime (for example, Sudan).

The second common trend that I have noticed in my years of representing persons and companies which have received a letter of investigation, administrative subpoena, or proposed penalty from OFAC is that the consequences of violations are much […]

Pinnacle Aircraft Parts, Inc., based in Miami, Florida, just paid $225,000 to the U.S. Office of Foreign Assets Control (“OFAC”) regarding OFAC’s investigation of a jet engine that may have been shipped to Iran.  This case is unique in that OFAC did not assess the fine because the jet engine was actually shipped to Iran, but because Pinnacle Aircraft Parts failed to properly comply with it subpoena to provide all records about that shipment.

OFAC certainly has the authority to issue an administrative subpoena, and to demand documents for any alleged sale of a jet engine to Iran. See 31 CFR Section 501.602, which states:

Every person is required to furnish under oath, in the form of reports or otherwise, from time to time and at any time as may be required by the Director, Office of Foreign Assets Control, complete information relative to any transaction,…

Pinnacle received such a subpoena demanding “all correspondence and other documents” related to the payment and transportation of the jet engine.  Through its outside legal counsel, Pinnacle provided 260 pages of responsive documents, however, according to the OFAC’s Enforcement Information notice for November 16, 2010.

[Pinnacle] failed to submit a copy of a post-sale e-mail – which Pinnacle had provided to its [legal] counsel – indicating that the aircraft engine was likely destined for Iran…

OFAC determined that the failure to produce the responsive document was “egregious”, resulting in almost the maximum penalty of $250,000. OFAC concluded that Pinnacle “knowingly withheld” the relevant documentation. Pinnacle’s unfortunate reliance on the incorrect advice of […]

Maersk Line, Ltd. paid the U.S. Office of Foreign Assets Control (OFAC) $3 million to settle allegations of violations of the U.S. trade embargo with Sudan and Iran that Maersk committed between 2003 and 2007.   How the world’s largest ocean transportation company committed such violations is a good story. How Maersk’s lawyer was able to limit the payment to $3 million is also important to understand.

According to the OFAC Enforcement Information for July 28, 2010,

OFAC’s investigation alleged that Maersk provided unlicensed shipping services for 4,714 shipments of cargo originating in or bound for Sudan and Iran. These services involved the transportation of such cargo on vessels owned, operated, and/or chartered by Maersk’s parent, A.P. Moller-Maersk A/S on at least one leg of the cargo’s journey to or from Sudan and Iran.

This is very interestingly worded by OFAC.  As A.P. Moller-Maersk A/S, a Danish conglomerate, is not bound by the U.S. laws regarding trade sanctions with Sudan and Iran, it could provide unrestricted vessels services in those countries.  If, however, any part of the cargo to or from those countries were transported on a U.S.-flagged vessel, then a violation of the U.S. laws would occur.  Cargo is often shifted from ship to ship between the port of departure and the port of delivery, and A.P. Moller -Maersk did not carefully trace the cargo from Sudan and Iran as well as it should have to prevent the cargo from touching a U.S.-flagged vessel.

Using OFAC’s Economic Sanction Enforcement Guidelines effective November […]