The luxury brand Cartier made headlines last September for violating narcotics trafficking sanctions – and their parent company agreed a USD 334,800 settlement with the Office of Foreign Assets Control (OFAC).

They could have avoided the sanctions by undertaking compliance research.

A customer bought jewelry from Cartier in the US, and requested the items be shipped to an address in Hong Kong. The address and entity at this address exactly matched a blacklisted entity on OFAC’s Specially Designated Nationals (SDN) list. If Cartier had done a check of the SDN list, they would have found that the entity was blacklisted, and that shipping the jewelry would be a sanctions violation.

While this case is an example of the growing need for compliance checks by retailers, we are now also seeing a trend of OFAC enforcing sanctions against a broader range of companies than before.

What is OFAC?

OFAC is the US body responsible for implementing economic sanctions. They maintain a list of sanctioned countries, and the aforementioned SDN list is made up of individuals and companies. Sanctions against a country may be comprehensive, for example those against North Korea essentially forbid all transactions between the country and the US. More common are targeted sanctions, which ban or limit transactions connected to specific industries or SDNs

Why be concerned now?

In the past, OFAC penalties focused on US-based banks or institutions – but in recent years have been increasingly targeting non-financial institutions, such as tech companies. Despite this, they had not penalized non-US companies. This changed in July 2017, when they fined the Singapore-based company CSE TransTel Pte. Ltd. over USD 12 million for apparent violations of OFAC sanctions against Iran. While not a US entity, TransTel had used its USD denominated account at a Singapore bank to pay Iranian third parties – the money transfers were processed through the United States, without being disclosed to OFAC.

In November 2017, another non-US entity, BCC Corporate SA, a Belgian company whose parent company was 50% owned by American Express, was penalized for credit card transactions in Cuba.

It may be that OFAC expanding its focus to include international companies is down to the Trump administration wanting to be seen as tough on Iran and other countries – the August 2017 “Countering America’s Adversaries Through Sanctions Act” significantly increased the scope of sanctions and more recent sanctions have targeted entities doing business with Cuba and North Korea.

What should companies do?

However, PSA has seen increasing concern among many of our clients, particularly in the banking sector. They are asking for due diligence on potential business partners to cover not only the business partners themselves, but also any affiliated entities. They want to identify if the affiliates have any business in countries with many SDNs, such as Iran and Russia – even if there is no sign that these affiliates have dealings with sanctioned entities or individuals.

With more than twenty years of global experience, PSA has deep experience in due diligence and other areas of corporate investigations. To learn more about how PSA’s Due Diligence services can mitigate corruption risks for your company, visit our Due Diligence page or contact info@psagroup.com.

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