On Monday, April 25, 2022, the U.S. Treasury Department\u2019s Office of Foreign Asset Control (\u201cOFAC\u201d) announced a settlement with Toll Holdings Limited (\u201cToll\u201d), an Australian freight forwarding and logistics company, with respect to Toll\u2019s originations and\/or receipt \u201cof payments through the U.S. financial system involving sanctioned jurisdictions and persons.\u201d Toll, which is not an American entity, and is neither owned by Americans nor located in the U.S. or any of its territories, was involved in almost 3000 transactions where payments were made in connection with sea, air, and rail shipments to, from, or through North Korea, Iran, or Syria, AND\/OR involving the property of a person on OFAC\u2019s Specially Designated Nationals and Blocked Persons List. OFAC did not have direct jurisdiction over Toll, BUT because the payments for Toll\u2019s freight forwarding and logistics services flowed through U.S. financial institutions, Toll \u201ccaused the U.S. financial institutions to be engaged in prohibited activities with \u2026 sanctioned persons or jurisdictions.\u201d<\/p>\n\n\n\n
Each OFAC violation can be the basis of civil sanctions. Here the 2853 violation would have supported the imposition of civil sanctions totaling over $826 million. Toll was \u201chappy\u201d to settle OFAC\u2019s enforcement action for $6 million. OFAC found that the Toll violations were \u201cnon-egregious,\u201d in part due to the rapid growth of Toll after 2007 through acquisitions of smaller freight forwarding companies. OFAC noted that by 2017 Toll had almost 600 invoicing, data, payment, and other systems spread across its various units. OFAC also noted that Toll did not have adequate compliance procedures and procedures in place and did not attend to those issues until an unnamed bank threatened to cease doing business with Toll because Toll was using its U.S. dollar account to transact business with sanctioned jurisdictions and\/or persons. OFAC took note of Toll\u2019s voluntary self-disclosure, well-organized internal investigation, and extensive remedial measures.<\/p>\n\n\n\n
OFAC traces its origins to the War of 1812, when the then Secretary of the Treasury imposed sanctions on the United Kingdom in retaliation for the impressment of American sailors. The Treasury Department has had a special office dealing with foreign assets since 1940 (and the outbreak of World War II), with statutory authority found in the Trading With The Enemy Act of 1917 (as World War I raged), and a series of federal laws involving embargoes and economic sanctions. OFAC received its current name as part of a Treasury Department order on October 15, 1962 (contemporaneous with the Cuban missile crisis).<\/p>\n\n\n\n
The Toll settlement reflects the growing use by OFAC of public enforcement against foreign businesses for \u201ccausing\u201d violations by involving U.S. payment systems. The use of U.S. dollars in any part of a transaction will typically involve the U.S. financial system, directly or indirectly \u2013 that subjects the entirety of the transaction to U.S regulatory jurisdiction, including that of OFAC. The Toll settlement evidences OFAC\u2019s increasing willingness to exercise its expansive jurisdiction over foreign businesses, even those involving primarily extraterritorial transactions — for example, the increase in OFAC sanctions of foreign businesses seen as facilitating the Russian invasion of Ukraine.<\/p>\n\n\n\n
Foreign businesses must give serious and continuing attention to having substantial policies and procedures in place to insure compliance with U.S. sanctions and, thereby, to avoid OFAC enforcement actions. Companies can start by reviewing OFAC\u2019s Framework for Compliance Commitments and implementing the recommendations there. In addition, all parties to a transaction should be screened against sanction lists (OFAC\u2019s, and also those of the U.K. and E.U.). Companies should consider adopting preventive measures, not only to deter violations, but also to demonstrate a vigorous compliance program. Similarly, these issues MUST be considered as part of any merger or acquisition (as the Toll experience suggests).Finally, all counterparties, including financial intermediaries, should be evaluated for potential sanction list issues. Otherwise, a foreign business may have to \u201cpay the Toll\u201d for its shortcomings.<\/p>\n\n\n\n
Experienced American business lawyers may prove helpful in designing and\/or evaluating the compliance programs of non-U.S. companies.<\/p>\n\n\n\n