ILMA Compoundings - July 2019 - 14

INDUSTRY RUNDOWN

International Insight
Complying with U.S. Sanctions
OFAC outlines standards of scrutiny
By James Eggenschwiler
Buying raw material ingredients and selling and delivering shipments of lubricant products to international
buyers around the world are no easy tasks. The numerous sanctions imposed by the U.S. and other governments seem to litter international commercial markets
and magnify the complexity of selling those shipments
safely. The U.S. Office of Foreign Assets Control (OFAC)
also understands these complexities, along with the
normal propensity of buyers and sellers to allow familiarity, commercial history and time sensitivity (among
other factors) to erode the diligence needed to prevent
prohibited conduct.
OFAC recently published updated guidance and requirements for compliance programs designed by companies to
prevent infractions in this area. Out of that guidance, the
agency identified a list of common causes associated with
these violations that lead to enforcement action.
LACK OF A FORMAL OFAC SANCTIONS COMPLIANCE
PROGRAM
Topping the list as the single greatest cause is the lack of a
formal compliance program. The fact that this is the single
greatest cause sends a few messages. First, a compliance
program requires more than a document in electronic file.
Second, it means that compliance with this area should
not be addressed simply by a section in a document that
addresses a variety of conduct issues. Most saliently, it means
that the program must be sufficiently robust to detect and
prevent potential misconduct before it happens. This last
point sizes the need for development of procedures, installation of process controls and assignment of responsibilities
to specific individuals who are well-positioned to monitor
conduct in this area.
MISINTERPRETING OR FAILING TO UNDERSTAND THE
APPLICABILITY OF OFAC REGULATIONS
The OFAC continues to find that key personnel who are
directly engaged in related activity, as well as leaders at other

JULY 2019

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levels who have or share relevant management responsibility,
must be made more aware of the standards of oversight and
management required by OFAC regulations. Unfortunately,
this means more than a single training event, regardless of
its duration or detail. The standards continue to change, and
people forget and become less vigilant.
FACILITATING TRANSACTIONS BY NON-US PERSONS
This is a very broad and important statement. Practically
all international transactions include facilitation by one or
more non-U.S. persons. The failure to which this alludes
is recognizing that all non-U.S. persons who are parties to
a transaction or who play a role directly in the transaction
setup or conclusion must be thoroughly scrutinized and
cleared ahead of the transaction. The OFAC considers that
their non-U.S. status is an obvious indication that thorough
precautions must be taken.
From personal experience, this particular cause is easily
the fault of familiarity and good commercial history tainting
the judgment of individuals central to the transaction. This
is a point where otherwise effective compliance programs fail
because these individuals fear offending their well-known
counterparts and reduce or altogether defeat steps that
would ordinarily prevent the infraction. Companies must
keep in mind that details that might taint a transaction
party are not necessarily inappropriate conduct by that
party, and the flag that might be thrown concerning the
transaction might not be based on their conscious personal
or corporate conduct.
EXPORTING OR REEXPORTING U.S.-ORIGIN GOODS,
TECHNOLOGY OR SERVICES TO OFAC-SANCTIONED
PERSONS OR COUNTRIES
This all too frequently occurs as a direct export, but the
majority of instances are triggered by parties who reexport
the U.S.-origin goods. The reexporters might be the original recipients, or they might be eventual recipients further
downstream. This particular scenario warrants the reminder

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ILMA Compoundings - July 2019

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