This is Part 2 of a three-part series examining the benefits of cooperation with the Office of Foreign Assets Control (OFAC). For Part 1, click here.
As the formulas from Part 1 demonstrate, OFAC’s regulations strongly incentivize cooperation to reduce a violator’s penalty. The next section examines a few recent enforcement actions in which companies have taken advantage of these regulatory formulas to minimize penalties resulting from violations.
Recent penalties issued to cooperating entities
Several recent examples suggest that OFAC rewards cooperating entities with mild penalties.
ATP Tour, Inc.
In June 2013, OFAC reached a settlement of $48,600 with ATP Tour, Inc. for alleged violations of the Iranian sanctions program. ATP, the governing body of men’s professional tennis, paid the salary of a tournament official who resided in Iran. ATP did not voluntarily self-disclose these payments, and there were additional aggravating factors in the case, such as: eight of the eighteen payments at issue occurred after OFAC issued a warning letter to ATP, ATP’s management knew about the payments, and ATP had no compliance program when it made the payments. Despite those considerations, ATP settled for one-third of the $135,000 base penalty amount. In announcing the settlement, OFAC commented on a number of mitigating factors that contributed to the lenient settlement, including: ATP was a “first-time” offender, ATP eventually cooperated with OFAC’s investigation, the payments amounted to “relatively low harm” to the goals of the sanctions program, the payments were likely eligible for a license from OFAC, ATP is a non-profit organization, and ATP has since instituted a compliance program.
American Steamship Owners Mutual Protection & Indemnity Association
In May 2013, OFAC reached a settlement of $348,000 with the American Steamship Owners Mutual Protection and Indemnity Association (the “American Club”). The American Club found itself on OFAC’s radar after processing insurance claims involving Cuba, Sudan, and Iran. The company did not voluntarily self-disclose, and it faced a base penalty of $1,729,000 for this “non-egregious” case. Explaining the settlement — for only about 20 percent of the base penalty amount — OFAC noted that the American Club was a “first-time” offender, that it cooperated with OFAC after becoming aware of OFAC’s investigation, and that the transactions likely would have been eligible for a license from OFAC had the American Club applied. OFAC also noted that other “individual characteristics,” including the entity’s size and financial condition, also contributed to the lenient settlement.
Offshore Marine Laboratories
In February 2013, OFAC settled an enforcement action against Offshore Marine Laboratories (OML), which exported parts and supplies to the UAE to be used in an offshore drilling rig in Iranian waters. The base penalty for this offense, which was not voluntarily disclosed and which OFAC classified as “non-egregious,” was $167,000. Ultimately, OML settled the matter for $97,695 — a reduction of over 40 percent. OFAC noted the aggravating factors that OML harmed the objectives of the sanctions program by aiding Iranian petroleum and that OML had no compliance program at the time the violation occurred. On the other side of the ledger, however, OML was a first time offender, it cooperated with OFAC, and it implemented a compliance program after the violation came to light, all of which convinced OFAC to allow the company to settle the case at a substantial discount.
Toyota Motor Credit Corporation
OFAC has even been lenient to even sophisticated companies whose inadequate compliance measures resulted in easily-preventable violations. For example, a drug kingpin listed on OFAC’s Specially Designated Nationals List received automobile financing from Toyota Motor Credit Corporation. Despite Toyota’s failure to investigate this relationship, failure to self-report this violation, its inadequate compliance system, and its status as a commercially sophisticated entity, the base penalty was only $26,000, and Toyota settled the case on April 25, 2013 for $23,400.