OFAC Fines Exporter For Failure To Recognize Red Flags

OFAC Fines Exporter For Failure To Recognize Red Flags
Posted by Clif Burns at 8:53 pm on August 4, 2009
Category: Cuba Sanctions

Cuba PosterThe Office of Foreign Assets Control ("OFAC") released last Friday its monthly report of civil penalties it imposed for violations of the economic sanctions programs administered by the agency. I was particularly interested in the announcement of a $10,341.00 fine imposed against, and paid by, MGE UPS based on allegations that the California-based company "sold electrical regulators ultimately destined for Cuba." According to the penalty report, MGE didn't voluntarily disclose the violation.

The allegation that the goods were "ultimately destined for Cuba" is interesting because it indicates that MGE didn't ship the goods to Cuba but shipped the goods outside the country — likely to Schneider Electric, its parent company in France — and that the goods were then sent from outside the U.S. to Cuba. The penalty notice provides further information as to what occurred when it cites the following "aggravating factor" relied on by OFAC in assessing the penalty:

OFAC also determines that the following aggravating factor is present: the regional sales manager should have recognized that the shipment in question might be destined for Cuba and taken steps to stop the transaction.

Notice that MGE isn't being fined for exporting directly to Cuba. Nor is it being fined for an export knowing that it was going to be re-exported to Cuba. It was fined because one its regional sales managers "should have recognized that the shipment … might be destined for Cuba." It seems to me that if OFAC is going to fine exporters because an employee should have known that something might go to Cuba — a standard that could arguably be applied to any export to an E.U. country — the agency has an obligation to the export community to indicate what red flags were ignored here and what sorts of other "red flags" can serve as a basis for liability under such a theory.

Another interesting factor here is that OFAC was probably tipped off to the export of the MGE equipment to Cuba by the Cubans themselves who complained that Schneider Electric's acquisition of API somehow or other derailed planned exports of MGE products to Cuba. Look at this from the website of Cuba's Permanent Mission to the United Nations:

The merger resulting in the formation of ARC-MGE between the manufacturer MGE UPS Systems, part of the French Schneider Electric, and the American manufacturer APC, has created serious problems for supply of three-phase UPSs to Cuba's Ecosol. After lengthy delays in arranging purchases of this product, accompanied by false promises that the merger would not affect supply, the French APC-MGE told the Cuban company that it was to cease operations on the instructions of APC and would not be honouring its contractual commitments. Its executives in the Dominican Republic as well as those in France requested that they should not be contacted again, as this would place them in a difficult position. The supplies in question were destined for the University of Computing Sciences (UCI), the Neurological Hospital, the Institute of Cardiovascular Surgery and an amusement park.

Schneider bought APC in 2006. The exports resulting in the OFAC fine occurred in September 2005, prior to APC's objection to Cuba sales.

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