On June 8, 2017, the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a settlement with the American Honda Finance Corporation for apparent violations of the Cuban Assets Control Regulations (“CACR”), 31 C.F.R. Part 515. The settlement is interesting for any number of reasons, not least of which is OFAC’s application of its Enforcement Guidelines.
Between 2011-2014, Honda Canada Finance, Inc. – a majority-owned subsidiary of AHFC headquartered in Canada – “approved and financed 13 lease agreements between an unaffiliated Honda dealership in Ottawa  and the Embassy of Cuba in connection with the Cuban Embassy’s leasing of several Honda vehicles.” OFAC notes that while “AHFC and HCFI had policies and procedures in place to review transactions against OFAC’s [SDN List] for compliance with U.S. economic sanctions laws, they did not include the names of countries subject to OFAC-administered comprehensive sanctions in their screening system.” As a result, the lease documents from the Embassy of Cuba ostensibly did not trigger a screening review to determine compliance with U.S. economic sanctions laws. Compounding the issue, the Embassy of Cuba had provided HFCI documentation clearly evidencing its status as a Government of Cuba entity.
In or around January 2014, the American Honda Finance Corporation submitted an initial voluntary self-disclosure (“VSD”) to OFAC regarded certain of the subject leases. However, two months after filing its VSD, three of the subject leases were initiated and approved by HFCI – a fact that OFAC takes as evidence that AHFC had reason to know of the conduct giving rise to the alleged violations.
In response to the violations, AHFC undertook remedial action, “including by implementing a new policy governing its OFAC policies and proprietary systems.” Moreover, OFAC specifically licensed AHFC to engage in the subject transactions in June 2015. In settlement of its violations, American Honda Finance Corporation agreed to remit $87,255 to OFAC.
One point of interest is the manner in which OFAC applied its enforcement guidelines. General Factor B to the Economic Sanctions Enforcement Guidelines states that OFAC will consider “the actual or potential harm to sanctions program objectives caused by the conduct giving rise to the apparent violation” in determining an appropriate enforcement response. This includes, amongst other things, consideration as to “whether the conduct constituting the apparent violation likely would have been licensed by OFAC under existing licensing policy.” The presumption is that, if the conduct constituting the apparent violation would have been licensed by OFAC (e.g., if it fell within the scope of OFAC’s then-current licensing policies), then the actual or potential harm to U.S. sanctions program objectives is mitigated.
In the case at hand, OFAC considered the conduct at issue an aggravating circumstance, due to the fact that the conduct “resulted in harm to U.S. sanctions program objectives at the time they occurred.” This is curious because OFAC also regarded the fact that the subject leases were specifically licensed in June 2015 as a mitigating factor in determining an appropriate enforcement response. These two contentions appear to be in tension with each other to the extent that if the subject leases were licensable, as suggested by the fact that the leases were indeed later licensed, then AHFC’s conduct is unlikely to have resulted in harm to U.S. sanctions program objectives.
It is nonetheless possible to reconcile these two contentions. For instance, OFAC’s licensing policies could have changed in the interim period so that while the subject leases were not licensable between 2011-2014, they were licensable in 2015. However, OFAC makes no attempt to reconcile the two contentions. That is unfortunate. Failure to spell out clearly the basis for OFAC’s enforcement position risks producing a lack of clarity as to how OFAC applies its enforcement guidelines.