OFAC Sends Clear Message to Parties Conducting Business with Entities on OFAC’s Sectoral Sanctions Identification List

By: Olga Torres, Managing Member
Date: 04/23/2022

As the U.S. and the European Union continue to impose new sanctions on Russia in response to the invasion of Ukraine, regulatory authorities continue their pursuit of companies and individuals who violate those sanctions. The most recent example is a settlement agreement between the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) and S&P Global, Inc. (“S&P”).

On April 1, 2022, S&P agreed to pay OFAC $78,750 to settle its potential civil liability for alleged violations of the 2014 Ukraine-Related Sanctions Regulations, 31 C.F.R. part 589, specifically Directive 2 issued pursuant to Executive Order 13662 of March 24, 2014, “Blocking Property of Additional Persons Contributing to the Situation in Ukraine” (“E.O. 13662”).

S&P’s violations took place in 2016 and 2017 after it acquired Petroleum Industry Research Associates, Inc. (“PIRA”), which was doing business with JSC Rosneft (“Rosneft”), a state-owned Russian oil company on OFAC’s sanctions list. In August 2015, before its acquisition by S&P, PIRA issued an invoice of $82,500 to Rosneft for advisory services and market analysis. That invoice was due in October 2015, but Rosneft did not attempt to pay until May 2016, after S&P had acquired PIRA.

PIRA's bank rejected Rosneft's payment, and the company informed PIRA that the bank had stopped payment in compliance with OFAC’s sanctions. The Russian company then made another attempt to pay which was also not processed by PIRA’s bank. To get around this, in July 2016 PIRA suggested to Rosneft that they pay the invoice by check. Rosneft did not do this and instead reminded PIRA that payments were held up due to their bank’s sanctions policy.

At this point, a year had passed since the original invoice was issued, which created some concern at S&P about sanctions violations: the company wrote to Rosneft, reminding them that timely payment was necessary because “when the payment is made against an old invoice (as recent ones were), the bank may perceive that to be ‘extending credit’ to a Russian company, which we cannot do by law.”

To avoid the impression that it was extending credit to Rosneft, S&P reissued its original $82,500 invoice with a new date of August 26, 2016, more than one year after first preparing it. In October, Rosneft made a $55,000 partial payment for the invoice, which led S&P to issue two new $13,750 invoices for the remaining amount in late November 2016. Rosneft paid one of those invoices just before the end of the year but did not pay the second, which led S&P to reissue the final $13,750 invoice with yet another new date of September 5, 2017. Rosneft paid this invoice in early October 2017.

In the end, S&P was paid the total amount of its original invoice to Rosneft. But to get there, it issued four new invoices in the process, each time violating the debt and equity restrictions set forth under E.O. 13662.

Three takeaways for companies doing business with entities on OFAC’s Sectoral Sanctions Identification (“SSI”) List:

  1. Compliance is not optional. If you deal with sanctioned companies, you must follow the rules to the letter. S&P tried to get around prohibitions on transactions involving debt older than 90 days, but issuing new invoices did not change the fact that they extended credit to Rosneft for more than two years.

  2. Compliance training and monitoring is critical. S&P knew that their actions violated Ukraine sanctions (they told Rosneft as much). But processes and procedures to prevent these violations do not appear to have been put into place at PIRA. After M&A deals are closed, companies must promptly establish and monitor robust compliance programs at their new business entities to ensure that employees understand OFAC regulations and identify potential violations.

  3. Getting in front of violations can pay off. S&P faced a maximum penalty of more than $1.2 million, but OFAC determined that even though the company had not voluntarily disclosed the violations it knew it was committing, the mitigating factors in the matter – in particular, S&P's remedial measures to enhance their compliance program and their cooperation throughout the matter with OFAC – warranted a smaller fine of only $78,750.

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If you have questions regarding compliance with Ukraine-Related Sanctions Regulations or other matters discussed in this guidance, please get in touch with the attorneys at Torres Law.