By George W. Thompson
Put this one in the “it shouldn’t even have seemed like a good idea at the time” category.
The Office of Foreign Assets Control (OFAC) recently found a violation of its Sudan Sanctions Regulations, codified at 31 C.F.R. Part 538, due to a U.S. company’s “facilitation” of exports from Egypt to Sudan. https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20160204_jjme.pdf and https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/2016_fov_jjme.pdf.
While there was no monetary penalty imposed, the case still stands as a cautionary lesson for U.S. firms in their dealings with foreign affiliates.
As described by OFAC, a U.S. parent corporation (Johnson & Johnson) assumed the role of “business planning and supervision” for its Egyptian subsidiary. In exercising these tasks, the parent “coordinated and supervised” five of the subsidiary’s exports to Sudan. The error was attributed to lack of OFAC sanctions compliance training. Two shipments occurred even after the U.S. company was aware there was a problem, an activity that OFAC termed “reckless disregard”.
OFAC declined to assess a monetary penalty. Public issuance of a violation notice pointing out the U.S. company’s deficiencies may be punishment enough.
Facilitation Has Many Forms
This case does highlight the extensive reach of “facilitation”. In its original meaning, the term meant that an individual or corporate “U.S. person” cannot do indirectly what is prohibited from doing directly. If the regulations prohibit exports from the United States to the sanctioned country, it is not a permissible work around to participate in an alternative transaction from a third country.
Likewise, a U.S. person cannot approve or refer prohibited business to someone outside of OFAC’s regulatory coverage. Nor can a U.S. company alter a subsidiary’s operating procedures so that it can conduct business with a sanctioned country, if the current procedures would require U.S. involvement, such as U.S. managerial approval of contracts above a threshold amount.
U.S. Persons Prohibited from Any Involvement in Prohibited Transactions
The problem is particularly acute when a U.S. person has managerial oversight of geographic areas that include a sanctioned country, entity or individual. It doesn’t matter whether the person is a company or individual located in the United States, or an individual employed by a foreign concern. There can be no involvement in transactions with sanctioned destinations or persons.
This prohibition can hamstring the ability of an individual U.S. person employed abroad to perform assigned job responsibilities, or even get hired in the first place. It also can disrupt a U.S. company’s ability to oversee its foreign affiliates’ behavior. None of this matters to OFAC. That agency’s overriding goal is to shut off any unauthorized trade with sanctioned countries, a lesson Johnson & Johnson just learned the hard way.
The lesson to the rest of us is set forth in OFAC’s penalty announcement:
This enforcement action highlights the need for U.S. companies, particularly large, sophisticated entities dealing primarily in international transactions, to ensure that their employees are properly trained on OFAC regulations, especially managers who oversee sales to regions that pose a particularly high risk for violations of the sanctions programs administered by OFAC.
