OFAC Penalizes U.S. Parent for Foreign Company’s Disregard of Cuban Sanctions

By George W. Thompson

trade sanctions and finesThe Office of Foreign Assets Control (OFAC) has imposed a penalty of $140,400 against a United States architectural design company and its United Kingdom subsidiary for violations of the Cuban Assets Control Regulations. There’s nothing particularly remarkable about this case, but it does illustrate a few compliance pitfalls for companies with international operations.

The UK subsidiary, Wimberly Allison Tong and Goo (UK) Limited, undertook design work for a Cuban hotel property, for which it received payment from a Qatari company. OFAC somehow learned about the transaction and initiated penalty proceedings against the UK company and its American parent, WATG Holdings, Inc.

Foreign Subsidiaries Are Subject to OFAC’s Cuban Sanctions Regulations

Your initial reaction might be to ask why OFAC is concerned with whether a British company does business with Cuba. The answer is that regulations, which broadly prohibit nearly all activities with Cuba, apply to any “person subject to the jurisdiction of the United States.” That term includes both U.S. enterprises and “any corporation . . . wherever organized or doing business, that is owned or controlled by” a U.S. corporation. Thus, foreign subsidiaries are covered when the U.S. ownership or control standard is met. Note that the standard for Cuba is different from that applied for other sanctions programs, such as Sudan, implicated here.

OFAC’s summary of the facts made no reference to the U.S. parent being involved, so it appears the only actor was the UK company. Nor was there any reference to an intent to evade the regulations, despite the payment’s issuance from Qatar. Instead, it appears the violation occurred simply because the UK company did not know it was covered by the OFAC prohibitions.

Violation Due to Lack of a Compliance Plan?

According to OFAC, there was no compliance program in place when the transactions occurred. In practice, this meant it would have been unlikely the foreign subsidiary was aware of the sanctions and their applicability.

For U.S.-headquartered multinational enterprises, this gap means flirting with danger. Even without a formal compliance structure, a United States company will probably be aware that trade with Cuba is restricted. For foreign affiliates that are following their local laws, and perhaps following the lead of local competitors that are not “subject to the jurisdiction of the United States,” however, trade with Cuba may seem perfectly acceptable if they have never been told otherwise. The result, in this case like many before it, was a violation.

Thus, unremarkable as it may otherwise be, the WATG Holdings case highlights one of the special requirements imposed on U.S.-based corporate families. OFAC’s rules have a long reach. Companies within that agency’s jurisdiction, no matter where located, must ensure they know what those rules are and act accordingly.

OFAC’s web notice regarding the violation and its finding of violation letter are on the web.


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