On July 16, 2020, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the settlement of apparent violations of the North Korea Sanctions Regulations by Essentra FZE Company Limited (Essentra), a global supplier of cigarette products located in the United Arab Emirates. In addition, in exchange for a deferred prosecution agreement with the U.S. Department of Justice (DOJ) and the payment of a fine of $665,112, Essentra admitted to violations related to North Korean sanctions.
Among the allegations against Essentra were that in early 2018, a senior manager and an employee were introduced to a North Korean national during a business meeting. During this meeting, the parties discussed Essentra’s ability to produce specific cigarette products for exportation to North Korea. Although these representatives of the company knew at all times that the products would be shipped to North Korea, it received and executed documents that identified front company counterparties in China. Essentra’s manufacturing and exportation of the products to North Korea resulted in three wire transfers to pay for the goods, one in U.S. dollars that transited the United States and two in another currency that were deposited into Essentra’s accounts at the foreign branch of a U.S. bank between September 2018 and December 2018.
Several points stand out about this settlement:
- This is the first ever DOJ corporate enforcement action for violations of North Korean Sanction Regulations. This may indicate a new focus for enforcement actions by the DOJ.
- Essentra and the referenced employees are not U.S. persons. The apparent violations stemmed from the use of the U.S. financial system, including the non-U.S. branch of a U.S. bank. Even where no organizations subject to U.S. jurisdiction may be involved in the underlying activity, the inclusion of a U.S. financial institution in payments associated with the activity can result in or cause violations.
- OFAC found certain aggravating factors, including willful violations and the company’s failure to voluntarily self-disclose the apparent violations, which led OFAC to designate this as an “egregious case.” Nevertheless, because it had no preceding violations and it cooperated substantially with OFAC’s investigation, the fine imposed was less than the maximum penalty.
- OFAC also found that the company had policies and procedures in place to prohibit trade with North Korea, but the manager and employee disregarded those policies and engaged in the violating conduct. The settlement agreement with OFAC included the five essential components of compliance as set forth in the Framework for OFAC Compliance Commitments: (1) management commitment; (2) risk assessment; (3) internal controls; (4) testing and auditing; and (5) training (which we discussed in detail in a prior post).
Heather Hatfield represents clients in corporate investigations, white-collar crime investigations and defense involving the Foreign Corrupt Practices Act (FCPA), complex contract disputes, oil and gas litigation ...
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