Lessons from Enforcement Actions

In our effort to keep the international trade community aware of red-flags for trade violations, below please find a summary of recent enforcement actions by the U.S. Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”). These cases exemplify the risks of cross-border trade and hopefully add to your awareness of the “tricks of the Trade.”

Recent OFAC and BIS Enforcement Actions

  1. Haas Automation, Inc. (January 17, 2025)

In a coordinated investigation involving OFAC and BIS, Haas Automation, Inc. settled allegations that it exported unlicensed goods to blocked parties located in Russia and China. The settlement requires the Company to pay a combined civil penalty of approximately $2.9 million, admitting to 41 violations of the Export Administration Regulations (EAR) and agree to ongoing audit and reporting requirements. The Company also admitted to violations relating to inaccurate Electronic Export Information (EEI) reports for certain shipments to Russia. There are several extenuating and mitigating factors discussed below that may be useful to industry to update your export and trade compliance programs. At bottom, the Company suffered due diligence failures.

Haas sells  Computer Numerical Control (CNC) machines, technology and parts in foreign markets through a network of authorized third-party distributors. A number of customers of the Company’ Russian/Belarus distributor were on either OFAC’s list of specially designated nationals and blocked persons (“SDNs”) or on BIS’ Entity List. At bottom, the Company suffered a breakdown of due diligence regarding the end users and end uses of its goods.

For our discussion, the OFAC statutory maximum civil monetary penalty alone could have been $7,730,856.

Here is what Haas did to help reduce the fines: the Company

  • took prompt and significant remedial action by conducting a thorough internal investigation and enhancing their compliance program, including by hiring additional personnel, improving compliance policies and procedures, purchasing a new compliance screening tool including screening customers’ ownership, implementing comprehensive training requirements for all the Company and its distributors’ employees, and established an audit procedure for high-risk jurisdictions;
  • agreed to track its CNC machines’ location and ensure it is not moved without permission;
  • was highly cooperative with and tolled the statute of limitations during the investigation, and filed a comprehensive self-disclosure; and
  • had not received a Penalty Notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the action.

Here’s what the Company could have done better:

  1. recognizing  advanced nature of its product and the sensitivities in the region where its products were deployed, the Company should have exercised enhanced due diligence prevent the export of its goods and services to customers that were (i) either identified on OFAC’s SDN List or that were owned 50 percent or more by such persons, or (ii) identified on the BIS entity List; and  
  2. the Company did not self-report the activity – the apparent violations were discovered by U.S. regulators.
  1. SkyGeek Logistics, Inc. (December 31, 2024)

SkyGeek Logistics, Inc. settled with OFAC for $22,172 relating to six apparent violations of the Russian Harmful Foreign Activities Sanctions Regulations. OFAC  In 2024, SkyGeek attempted two refunds and sent four shipments of goods to two SDNs located in the United Arab Emirates. The SDNs were sanctioned for involvement in Russia’s military-industrial base that enable its illegal war in Ukraine. The statutory maximum civil monetary penalty applicable in this matter was $2,208,816.

Here is what SkyGeek did to help reduce the fines: the Company

  1. had not received a Penalty Notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the Apparent Violations;
  2. undertook significant remedial efforts, including a comprehensive business review of its sales to jurisdictions that may present a higher risk for sanctions evasion and thereafter ceased all sales to 45 high-risk jurisdictions;
  3. updated its controls to require screening of customers requesting refunds, including their billing and shipping names and addresses; using more robust search logic, including improved fuzzy logic for sanctions screening; and providing enhanced training for employees;
  4. adding new software to improve the efficiency and accuracy of screening, and now conducts regular screening of customer orders before they are accepted and throughout the process until orders are fulfilled; and
  5. voluntarily disclosed four of the six apparent violations, reported to OFAC the remaining two apparent violations that were blocked and reported to OFAC by a financial institution, conducted a comprehensive investigation, and was highly cooperative with OFAC’s investigation.

Here’s what SkyGeek could have done better. The Company failed to exercise enhanced due diligence commensurate with the jurisdictional and industry-related sanctions risks, which led to shipments and attempted refunds to two entities on OFAC’s SDN List.

  1.  Córdoba Music Group LLC (December 18, 2024)

OFAC reached settlement with Córdoba Music Group LLC, a manufacturer of musical instruments in the amount of $41,591 to settle potential civil liability for apparent violations of sanctions on Iran. On nine occasions, Córdoba shipped instruments and related accessories that it knew were ultimately destined for Iran. Although Córdoba knew the products were destined for Iran, it apparently did not realize that indirect exports to Iran violated U.S. sanctions. The settlement amount reflects OFAC’s determination that Córdoba’s conduct was non-egregious and voluntarily self-disclosed. 

Here’s how Cordoba reduced its fines: the Company

  1. is a small manufacturer of musical instruments with fewer than 100 employees and has no history of sanctions-related enforcement action;
  2. sanctions compliance program was enhanced by providing training for relevant personnel on U.S. sanctions and implementing continuing training programs, and instituting compliance procedures, such as extensive third-party screening requirements and sales order reviews; and
  3. fully cooperated with OFAC’s investigation.

Here’s what Cordoba could have done better:  Córdoba failed to exercise due caution or care for its compliance obligations by engaging in trade with Iran without taking steps to ensure such trade would not violate U.S. law.

IV.            C.H. Robinson International Inc. (December 13, 2024)

C.H. Robinson International Inc. settled with OFAC, a U.S.-based global transportation and logistics company, agreed to pay $257,690 to settle potential civil liability relating to 82 apparent violations of sanctions against Iran and Cuba conducted by five of its non-U.S. subsidiaries. Following a series of acquisitions of overseas freight and logistics firms, five of the Company’s foreign subsidiaries provided freight brokerage or transportation services to or from Iran (in two instances), of Iranian- or Cuban-origin goods, or by dealing with an Iranian airline. The foreign subsidiaries involved in the apparent violations were based in Guangzhou, China, Spain, Canada, Australia, and Peru.

Key here is to conduct proper due diligence and implement appropriate controls when acquiring a non-U.S. business. OFAC at FAQ 11 reminds U.S. persons that “All U.S. persons must comply with OFAC sanctions, including all U.S. citizens and permanent residents regardless of where they are located, all individuals and entities within the United States, and all U.S. incorporated entities and their foreign branches. . . In the case of certain programs, foreign subsidiaries owned or controlled by U.S. persons also must comply. (See e.g., 31 CFR § 560.215 (ITSR); 31 CFR § 510.214 (North Korea Sanctions Regulations)).” U.S Persons should also consider whether its foreign subsidiaries are in the same line of business, use U.S. technology, or are funded from U.S. sources to determine their requirements to comply with U.S. trade laws.

Implications of Recent Actions

These recent enforcement actions demonstrate the need to comply with international trade laws across various industries. The settlements highlight several key themes:

  1. Importance of Compliance Programs: Companies must have robust compliance programs to identify and prevent potential violations. This includes regular training, thorough due diligence, and ongoing monitoring of transactions and business relationships.
  2. Broad Reach of Sanctions: U.S. sanctions can apply to a wide range of industries and activities. Companies must be aware of the specific sanctions programs that apply to their operations and ensure they are not inadvertently engaging with sanctioned entities.
  3. Consequences of Violations: Violations of U.S. sanctions can result in significant penalties, including fines and reputational damage. Companies must ensure compliance and avoid the costly consequences of enforcement actions.
  4. Evolving Nature of Sanctions: U.S. sanctions programs are constantly evolving in response to changing foreign policy and national security priorities. Companies must stay informed about updates to sanctions regulations and adjust their compliance programs accordingly.

Conclusion

OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals. U.S. sanctions are intended to target foreign countries, 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. Since the U.S. does not have extra-territorial jurisdiction, OFAC enforcement is directed at U.S. persons and through the use of “secondary sanctions” that primarily cut offenders off from the U.S. financial system. 

This TradeLaw Trends is for informational purposes only. ‎‎Please ‎contact the ‎author for specific issues. We plan ‎to monitor the ‎‎topics ‎‎‎addressed in this paper and provide ‎future ‎client updates when useful.