22 Jun 2020
The recent Civil Monetary Penalty (CMP) imposed by the Office of Foreign Assets Control (OFAC) on BIOMIN America (“BIOMIN”) seems appropriate, although the stated reasons for the penalty’s amount seem strange, given the facts in evidence. However, if you re-examine the entire fact pattern, there are better lessons to be learned than what OFAC has offered as its official stance.
What BIOMIN did
Over the span of over 5 years, starting in mid-2012, BIOMIN and firms it owned or controlled sold over $17 million in non-U.S. agricultural commodities to a Cuban firm without getting a license from OFAC. The enforcement action notes:
Believing that BIOMIN America could not directly export its agricultural products to Cuba … BIOMIN America’s managers developed a transaction structure that they incorrectly determined would be consistent with U.S. sanctions requirements. Under this structure, BIOMIN America processed purchase orders … on behalf of BIOMIN America’s foreign affiliates that would then fulfill the orders… BIOMIN America … received commissions on, these sales…
The action notes that BIOMIN could potentially have used a general license (listed in the text of the Cuban Asset Control Regulations, as opposed to being in a separate PDF document, as many General Licenses are) or applied for a specific license, but did not attempt to do so.
What OFAC said
OFAC’s Compliance Considerations section of the BIOMIN enforcement document states:
This case demonstrates the importance of U.S. companies with a global presence maintaining appropriate sanctions compliance programs, particularly when dealing with foreign subsidiaries and affiliates. Furthermore, U.S. companies can benefit from seeking appropriate advice and guidance when contemplating business involving U.S. sanctions programs rather than developing alternative methods through non-U.S. companies in order to avoid prohibitions on U.S. companies.
OFAC also noted as aggravating factors (elements which increase the severity of the fine):
- BIOMIN acted recklessly
- BIOMIN’s management knew of, and helped develop, the process used to violate sanctions
- BIOMIN in a division of a commercially sophisticated international company
What OFAC did not say
There are a number of areas in the BIOMIN action where relevant information seems to have not been given enough prominence, or not been put in proper context. In the first category, the enforcement action noted that BIOMIN did not have a sanctions compliance program. Lack of a compliance program is noted as one of the “root causes of compliance program failures” in OFAC’s May 2019 A Framework for OFAC Compliance Commitments (“Framework document”), yet it is not listed as an aggravating factor.
In the case of lack of proper context, it seems odd to single out management’s involvement in the actions. Firstly, the lack of a sanctions compliance program would seem to imply lack of proper attention being paid firm-wide to the company’s obligations and the knowledge necessary to discharge them properly. So, the fact that management was not more knowledgeable than the firm in general seems a strange thing to hold against the firm – especially when the lack of a compliance program seems a more relevant, and more important, failing.
Secondly, the firm believed the transaction structure it had designed was permitted under sanctions regulations. So, for management to be singled out for participating in what everyone thought of as a permitted activity seems un-instructive, at best. While the Framework document suggests that a proper sanctions compliance program has senior management review and approve the program (which would have made management aware of sanctions compliance efforts), BIOMIN’s actions ended over 18 months before the OFAC document’s publication.
Another item perhaps not taken in proper context was BIOMIN’s ownership by a commercially sophisticated international firm. The ERBER Group is based in Austria, where European Union sanctions regulations and enforcement apply. Unlike the U.S. and U.K., most countries do not investigate and penalize actual violations of sanctions requirements in the same manner. OFAC and the U.K.’s Office of Financial Sanctions Implementation (OFSI) for the prominence and public nature of their enforcement actions and public outreach. Other nations, as part of regular supervisory reviews, assess the financial crime controls (e.g. for anti-money laundering as well as sanctions) in place at regulated firms, and penalize those whose controls are found lacking. Generally, these reviews are conducted in select industries, most notably financial services. As such, it is quite possible, if not likely, that ERBER Group was completely unaware of its obligations under Austrian law and did not promulgate the need to review such requirements and take appropriate measures to any of its divisions under its management. Therefore, while the commercial sophistication of a firm is indeed listed as a factor to be considered by OFAC in its decision-making process, it is generally applied to the firm being penalized, not its corporate parent. One should assume that BIOMIN is not, in and of itself, commercially sophisticated – a point which would normally be considered a mitigating factor that would reduce the severity of the penalty – or OFAC would have said so, rather than mentioning the parent firm.
What OFAC could have said
The BIOMIN enforcement action, and related advice, make an excellent point about the need to seek advice rather than seek non-standard alternate ways to conduct business. The Framework document, in fact, lists use of non-standard processes as a cause of compliance failures. However, it could have been more impactful had it concentrated on additional elements:
- The lack of a sanctions compliance program is unacceptable for any firm doing international business – especially for a firm like BIOMIN which recognized, at a basic level, that they had to exercise some care in dealing with Cuba
- OFAC sanctions compliance is required for all “U.S. persons,” which includes, among others, all companies organized in the United States, and the U.S. operations of non-U.S. companies
Additionally, it would have been nice to reiterate the availability of General Licenses, Statements of Licensing Policy for specific licenses, and the exemptions that exist in the body of certain sanctions regulations.
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