Recent OFAC Enforcement ActionsAugust 7, 2015
The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) has announced enforcement actions in five matters.
Schlumberger Oilfield Holdings, Ltd.
On August 7, 2015, OFAC issued a Finding of Violation to Schlumberger Oilfield Holdings, Ltd. (“SOHL”), a subsidiary of Schlumberger Ltd. (“Schlumberger”), an oil field services company that maintains a principal office in Houston, Texas, for alleged violations of (i) OFAC’s Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (the “ITSR”) and (ii) the Sudanese Sanctions Regulations, 31 C.F.R. part 538 (the “SSR”). See here for our previous publication discussing criminal sanctions levied against SOHL.
Beginning in February 2004 and continuing through June 2010, SOHL violated the ITSR and the SSR by (i) systematically approving and disguising capital expenditure requests from operations in Iran and Sudan for the manufacture of new tools and for certain expenditures; (ii) directing and overseeing the transfer of oilfield equipment from projects in non-sanctioned countries to projects in Iran and Sudan; (iii) making and implementing business decisions specifically concerning projects in Iran and Sudan; and (iv) providing certain technical services in order to troubleshoot mechanical failures and to sustain sophisticated oilfield services equipment in Iran and Sudan. In its release, OFAC pointed out that Schlumberger’s senior management knew or had reason to know of the conduct giving rise to the alleged violations and that Schlumberger is a large and sophisticated global company that knew or should have known of its obligations to comply with the ITSR and SSR.
Navigators Insurance Company
On August 6, 2015, Navigators Insurance Company (“Navigators”), an insurance company headquartered in New York that specializes in marine insurance and related lines of business, professional liability insurance, and commercial umbrella and primary and excess casualty businesses, agreed to pay $271,815 to settle its potential civil liability for 48 apparent violations of various OFAC sanctions programs, including: (i) Executive Order 13466 of June 26, 2008, “Continuing Certain Restrictions With Respect to North Korea and North Korean Nationals,” and OFAC’s North Korea Sanctions Regulations (the “NKSR”); (ii) the ITSR; (iii) the SSR; and (iv) OFAC’s Cuban Assets Control Regulations, 31 C.F.R. part 515 (the “CACR”). OFAC indicated that the base penalty amount for all apparent violations was $755,042, that the apparent violations were voluntarily disclosed and that they were non-egregious.
Over an approximately three-year period, Navigators and its London branch (“Navigators London”) issued global protection and indemnity (“P&I”) insurance policies that provided coverage to North Korean-flagged vessels and provided coverage for incidents that occurred in or involved Iran, Sudan, or Cuba. Some of these incidents led to the payment of claims. According to OFAC’s release, one cause of the apparent violations was Navigators’ lack of a formal OFAC compliance program and misinterpretation of the applicability of OFAC sanctions regulations by personnel within Navigators London. Although detail is not provided in OFAC’s release, it may be that Navigators’ global policies did not contain a sanctions exclusions clause, or that the sanctions exclusions clause was improperly administered due to a misunderstanding. In OFAC FAQ 102, OFAC explains that for an insurer that seeks to participate in worldwide insurance markets through global insurance policies where coverage would otherwise extend to potential risks in sanctioned countries, the “best and most reliable approach for insuring global risks without violating U.S. sanctions law is to insert in global insurance policies an explicit exclusion for risks that would violate U.S. sanctions law.” In OFAC FAQ 103, OFAC recognizes that U.S. insurers may compete in international markets, and where such an exclusion is not commercially feasible, the insurer should apply for a specific OFAC license to issue the global insurance policy without exclusion. A separate license, however, would be required for the insurer to pay claims arising under any authorized global insurance policy.
Production Products, Inc.
On August 5, 2015, Production Products, Inc. (“PPI”), a provider of HVAC/sheet metal machinery and other tools and hardware based in Maryland, agreed to pay $78,750 to settle potential civil liability for alleged violations of OFAC’s Weapons of Mass Destruction Proliferators Sanctions Program (“NPWMD Program”) stemming from the shipment of three duct fabrication machines, with an aggregate value of $500,000, to, and payment from, China National Precision Machinery Import and Export Corp., which is a Specially Designated National. The maximum statutory penalty amount for the alleged violations was $1 million. Although the matter was not voluntarily self-disclosed, OFAC determined that the alleged violations constituted a non-egregious case and also took into account that PPI is a small, family-owned business with only ten employees and took remedial steps by implementing a sanctions compliance program.
Blue Robin, Inc.
On July 29, 2015, OFAC issued a penalty of $82,260 to Blue Robin, Inc. for violations of the ITSR with a transaction value of $205,650 and for which the statutory maximum civil monetary penalty was $8.25 million. Over approximately 18 months, Blue Robin conducted 33 transactions in which it imported Web development services valued at $205,650 from an Iranian company called PersiaBME. PersiaBME worked collaboratively with Blue Robin’s computer engineers via a private Internet portal provided by Blue Robin to develop Web-based systems and applications that were used to automate online business processes and operations for Blue Robin’s customers. In the penalty notice, which was made public by OFAC, OFAC indicated that Blue Robin imported services from the Iranian company over a period of more than five years and sent payments through unlicensed money exchangers instead of through traditional commercial banking channels. OFAC further indicated that at least one co-owner and manager of Blue Robin knew that Blue Robin was conducting transactions with an Iranian company, and that Blue Robin continued to receive services from PersiaBME in the form of technical assistance after Blue Robin became aware that it had violated the ITSR.
Great Plains Stainless Co.
On July 24, 2015, Great Plains Stainless Co. (“GPS”), a distributor of specialty stainless steel based in Tulsa, Oklahoma, agreed to pay a $214,000 penalty to settle potential civil liability with a statutory maximum penalty of $500,000 for alleged violations of OFAC’s NPWMD Program occurring over an approximate two-month period in 2009. GPS sold goods that its Chinese vendor shipped from Shanghai, China to GPS’s customer in Dubai, United Arab Emirates, aboard a vessel (the M/V Sahand) that was blocked under the NPWMD Program. OFAC’s release further indicates that GPS engaged in transactions that appear to have been intended to evade or avoid the prohibitions of the NPWMD Program by requesting the creation of new trade documents with references to the blocked vessel removed, and then transferring the altered documents to its customer to facilitate the release of goods held at port in Dubai. OFAC’s release also indicated that GPS was aware that the conduct giving rise to the alleged violations was prohibited without an OFAC license, given that GPS submitted a license application to OFAC, but that GPS disregarded verbal and written guidance from OFAC encouraging GPS to consult OFAC’s Licensing Division before engaging in additional transactions involving the shipping documents. Nevertheless, OFAC determined that the alleged violations constituted a non-egregious case, perhaps in part because OFAC determined that GPS had no reason to know that a blocked vessel was being used for the shipment of its goods until the sailing date.