OFAC Fines US Telecom Company for Violating Sanctions Through Illegal Exports, Services
The Office of Foreign Assets Control fined a New York telecommunications company and its subsidiary nearly $900,000 for exporting goods and providing services to a sanctioned government entity in Sudan. The company, Comtech Telecommunications Corp., exported warrantied satellite equipment and provided services and training to the Sudan Civil Aviation Authority (SCAA), OFAC said in a Sept. 17 notice. Along with the fine, Comtech said in a settlement agreement it will bolster its sanctions compliance program, including more frequent risk assessments, stricter internal controls and improved employee compliance training.
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Between June 2014 and October 2015, Comtech and its subsidiary, Arizona-based Comtech EF Data Corp., indirectly exported the equipment and “facilitated ongoing telephone support” and training for the equipment despite knowing the ultimate customer was sanctioned by the U.S., OFAC said. The violations stemmed from EF Data and its subsidiary, Canada-based Memotec, Inc., which entered into a sales agreement with a Canadian satellite communications equipment manufacturer that was procuring the equipment for a Sudanese end-user.
An EF Data employee alerted senior managers that they may “encounter export issues” because the end-user was in Sudan, and the company soon received a document from the Canadian manufacturer that identified the ultimate consignee as the SCAA. EF Data also received a warning from its third-party screening software that the sale required a license under OFAC export restrictions. Despite the warnings, EF Data shipped the items to the Canadian manufacturer, who exported the items to Sudan and trained seven SCAA employees on the use of the equipment, OFAC said. OFAC said EF Data’s export compliance officer tried to shift blame away from EF Data by transferring its compliance obligations onto the Canadian company.
Comtech submitted a disclosure to OFAC later that year and twice applied for a license to provide services to SCAA. Despite the fact that OFAC did not approve the licenses, Memotec continued to provide support for the exported equipment, and EF Data’s export compliance officer approved a warranty request to export four hardware units to the Canadian manufacturer to “fix a problem SCAA was experiencing with its hardware.” OFAC said it had denied EF Data’s license application to perform those services.
During OFAC’s investigation, Comtech agreed to two tolling agreements and made a “number of personnel changes,” including hiring several additional trade compliance officials. Comtech also agreed to a range of improved compliance measures in its settlement agreement and must annually certify for the next five years that it is upholding its compliance commitments.
OFAC said the violations constitute an egregious case. Aggravating factors included EF Data’s “reckless disregard” for U.S. sanctions programs, its failure to “heed warning signs,” the fact that its parent is a “sophisticated supplier with significant international operations,” and the fact that export compliance personnel approved the export of goods despite knowing they were destined for a sanctioned entity. OFAC also said the violations benefited the Sudanese government by allowing them to access U.S. satellite equipment and said EF Data gave “shifting explanations” to OFAC subpoenas.
OFAC pointed to just one mitigating factor: Comtech and EF Data had not received a penalty notice in the previous five years.
OFAC said the case highlights the importance of investing in “adequate internal controls” so individual employees are “not able to override those controls and approve otherwise prohibited transactions.” The agency added that companies should be cautious about proceeding with a transaction if a license application is still pending. OFAC also said companies involved in “high-risk international transactions” should recognize that they cannot shift their compliance obligations on to foreign customers or counterparties.