- Actions underscore long arm of U.S. sanctions jurisdiction
- Voluntary disclosures and cooperation can lead to significant penalty reductions
- Facilitation of a violation is treated the same as a direct violation
In two recent enforcement actions, the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) demonstrated the long-arm of U.S. economic sanctions jurisdiction. One matter involved Société Internationale de Télécommunications Aéronautiques SCRL (SITA), a Swiss firm that provides commercial telecommunications network and information technology services to the civilian air transport industry. The other involved Eagle Shipping International (Eagle), a U.S.-based shipping and logistics company.
Each action serves as a reminder of the U.S. government’s willingness to enforce U.S. sanctions in the context of what is primarily non-U.S. conduct. The resolutions also illustrate the potential benefits of voluntarily disclosing sanctions violations to OFAC.
SITA Provides U.S.-Origin Services to SDNs
On February 26, 2020, OFAC announced that SITA had agreed to pay $7.83 million to settle its potential civil liability for 9,256 apparent violations of the Global Terrorism Sanctions Regulations. SITA is a membership organization for aviation industry operators. It serves both members and non-members and provides services around the world, including some services that are provided from or supported in the United States.
OFAC commenced an investigation of SITA after determining that three specially designated global terrorist (SDGT) organizations, Mahan Air, Syrian Arab Airlines, and Caspian Air, were member-owners of SITA. OFAC also determined that these three parties had received or benefited from certain SITA goods, services, and/or technology. SITA subsequently determined and revealed to OFAC that it had provided services to two additional SDGT airlines, Meraj Air and Al-Naser Airlines.
The investigation determined that SITA provided services and software to the SDGTs in three forms that triggered U.S. sanctions jurisdiction, as follows:
- Type B Messaging (TBM), an air transportation messaging service that routes messages through switches located in Atlanta, Georgia;
- Maestro DCS Local (Maestro), a U.S.-origin application that allows users to manage processes such as check-in and baggage movement; and
- WorldTracer, a global baggage tracing and matching system hosted on SITA’s U.S. servers and maintained by SITA’s U.S. subsidiary.
Eagle Ships Product on Behalf of Burma SDN
On January 27, 2020, Eagle agreed to pay $1.125 million to settle its potential civil liability for 36 apparent violations of U.S. sanctions on Burma (Myanmar). In June 2011, Eagle’s Singaporean affiliate entered into a contract with a Singaporean buyer to carry sand from Burma to Singapore by boat. The buyer furnished Eagle and the vessel captain with a sample bill of lading that listed Myawaddy, an entity on the SDN List at the time, as the shipper.
Eagle expressed concern about Myawaddy and – apparently as a result of that concern – the buyer sent another bill of lading to Eagle, on the next day, listing an alternative shipper. However, the captain of the vessel refused to depart because other shipping documents still listed Myawaddy as the shipper.
The buyer then provided yet another set of shipping documents that did not list Myawaddy. The buyer also warned Eagle that continued delays would result in repercussions with the Burmese government. The vessel captain reported that Burmese officials had seized crew passports and refused to clear the vessel for departure.
Eagle immediately applied for an OFAC license authorizing the transaction in light of the apparent involvement of an SDN. However, prior to receiving a response from OFAC, Eagle shipped the sand to Singapore, where it was ultimately unloaded. (As an aside, it would be interesting to know how OFAC would have treated a violation in the context of a possible threat to the personal safety of the crew of the Eagle vessel. Probably without a lot of sympathy – but you never know.)
Following this initial voyage, Eagle filed a new license application with OFAC to request authorization to carry additional sand cargoes procured from Myawaddy. While that license application was pending, Eagle continued shipping sand from Myawaddy.
The application was ultimately denied. But according to OFAC, Eagle’s President failed to notify others in the organization, and the company continued transporting sand from Myawaddy to Singapore.
Voluntary Disclosure and Cooperation Can Lead to Significant Penalty Reductions
SITA did not voluntarily self-disclose its violations, which, OFAC determined, triggered a base civil penalty of $13.38 million. OFAC did acknowledge as mitigating factors SITA’s cooperation with the investigation and the substantial improvement of its compliance program. The $7.83 million that SITA ultimately agreed to pay was roughly 60% of the base civil penalty amount.
Eagle did self-disclose its violations which, OFAC determined, triggered a base civil penalty of $4.5 million. The self-disclosure was made in the context of a bankruptcy and the introduction of a new owner and management team at Eagle. Perhaps in significant part because of the new ownership, OFAC largely overlooked Eagle’s “reckless disregard” of U.S. sanctions on Burma, including the license denial, as well as the involvement of Eagle’s President and what OFAC deemed to be the significant economic benefit to Burma’s military regime.
Instead, OFAC highlighted Eagle’s substantial cooperation – including its disclosure, remedial measures, and improved compliance efforts. Ultimately Eagle paid a penalty ($1.125 million) that was one-quarter the base civil penalty.
The Eagle enforcement matter also illustrates the sort of scenario in which violations are often identified. When new ownership took control of Eagle in 2014, it uncovered the apparent violations and voluntarily disclosed them to OFAC. This is a good reminder about the importance of careful diligence, and of the benefit of proactivity in dealing with violations in the context of an acquisition, merger, or new investment.
* Thanks to legal intern Jacob Olliffe for his invaluable assistance in researching and drafting this article.
