National Oilwell Vargo Inc. (NOV), a houston based drilling company, agreed to pay a criminal fine of $25 million to the Department of Justice (DOJ) under the Non-Prosecution Agreement entered with the U.S. Attorney’s Office for the Southern District of Texas. This was a result of a settlement reached with DOJ, DOC, OFAC for violating trade sanctions by selling and exporting goods to Iran, Cuba and Sudan starting from the year 2002 leading upto 2009.
Even the big multi-national operation that is PayPal can neglect or overlook OFAC compliance risks. Last year, the electronic payments firm reached a $7.7 million settlement with the U.S. Treasury Department for over 486 apparent violations of U.S. economic sanctions requirements. One such violation, voluntarily disclosed, included authorizing payments totalling approximately $7000 across 146 transactions for Kursud Zafer Cire, a Turkish National who has been on the sanctioned list since 2009 for being tied to proliferators of weapons of mass destruction.
These are just two of the many companies that have received multi-millions of dollar penalties from the Department of Treasury and other regulatory bodies, as a result of trade sanctions violations. Smaller companies aren’t safe from OFAC sanctions either: A 10-employee, Maryland-based manufacturer, Production Products Inc. paid a settlement amount of $78,750 after they shipped three duct fabrications machines to China National Precision Machinery Import and Export Corp, which was on the OFAC SDN list. The machines were valued at $500,000 and the company could have been liable for up-to 1,000,000 which would have cost the company a closure but they settled.
More than ever, companies need to heighten their efforts to be in complete compliance with OFAC regulations, as OFAC has become more vigilant in monitoring and penalizing companies who do business with people, companies or countries that are engaged in terrorism, weapon of mass destruction proliferators or narcotics traffickers, or that are seen as a threat to the United States’ national security. In 2014 alone, OFAC applied sanctions or reached settlement totaling $1.2 billion. That was an increase of more than $200 million in penalties from 2010.
Maintaining and accounting for OFAC compliance can be a challenge, but it’s a challenge that businesses need to face head on. When looking to avoid OFAC sanctions by doing business with a SDN (Specially Designated National), OFAC officially encourages businesses to take a “risk-based approach;” that is, businesses should be working proactively to spot and stop deals that violate OFAC regulations.
If your company does business internationally, there are some things you must be doing to protect yourself from OFAC sanctions. That includes:
Having a clearly outlined policy for screening and blocking business partners that have been placed on OFAC’s SDN list. In addition to helping your business to flag potential SDNs, your screening policy can also help you should OFAC question your trade deals. When OFAC investigates, a company’s policy and procedures for obeying OFAC guidelines always are subject to review.
Making sure all relevant employees are trained on the OFAC screening prpcedures. It’s not enough to have a screening procedures in place. The employees who deal with the trade process must know and understand the background and need for OFAC Compliance. In PayPal’s case, their screening tool flagged the SDN, but employees chose to overlook the flags and alerts on the transactions because they didn’t fully understand the screening process.
Keeping records of your business deals and OFAC screenings. Should your company be audited by OFAC, you will have to produce five years’ worth of records. You don’t want to frantically search for records in the case of an audit; you want to make sure that everything has been clearly documented, recorded and you have an identifiable audit trail for the same.
Utilizing technology to help with screening and compliance. OFAC’s SDN list is constantly changing as SDNs are blocked and unblocked. It can be nearly impossible for companies to keep up with that. Additionally, keeping and storing records can be cumbersome. The right technology can be used to check your business partners against the current SDN list and to store all of your screening records.
When it comes to OFAC compliance, the stakes are high. There’s a high financial penalty for violations but even an investigation that doesn’t result in sanctions or violations can cost a significant amount of time, resources and money. You can’t afford to delay your handling of OFAC regulation compliance. Be sure that your screening policy is up to date, that your employees are trained on the policy, that your records are audit ready and that you are using all of the resources at your disposal to meet OFAC requirements.