Yesterday, the United States Department of the Treasury Office of Assets Control (“OFAC”) announced a settlement by Pinnacle Aircraft Parts for alleged violations of the Reporting, Procedures, and Penalties Regulations.
According to the press release, OFAC alleges that Pinnacle failed to provide certain documents responsive to an administrative subpoena issued by OFAC relating to Pinnacle’s February 2004 sale and delivery of a jet engine. the jet engine was valued at over $1 million and is alleged to have been destined for Iran.
The administrative subpoena issued by OFAC directed Pinnacle to provide detailed information regarding the jet engine transaction, including “copies of all transactional documents such as invoices, shipping documents, airway bills, correspondence, and all other documents pertaining to the payment or transportation of this shipment.”
In its response Pinnacle, through outside counsel, submitted more than 260 pages of responsive documents but failed to submit a copy of a post-sale e-mail, despite Pinnacle’s providing outside counsel with the email. Other responsive documents concerning the terms of sale were also not disclosed.
To make matters worse this failure was not voluntarily self-disclosed to OFAC. OFAC determined that the failures both to disclose and to not supply a voluntary self disclosure regarding such failure constituted an egregious case. As a result OFAC determined a base penalty amount of $250,000. The settlement amount takes into account the factors set out in the OFAC Enforcement Guidelines.
Some of the facts OFAC considered which were adverse to Pinnacle’s position were that the e-mail and other documentation was clearly responsive to the subpoena; Pinnacle was aware of, and knowingly withheld, the e-mail at the time it responded to the subpoena; the e-mail concerned the sale of an aircraft engine valued at over $1 million and impeded OFAC’s investigation into the apparent delivery of that engine to Iran. OFAC also considered some circumstances beneficial to Pinnacle including the fact that Pinnacle thas no prior OFAC enforcement history; they relied in good faith on the advice of legal counsel in determining not to produce the e-mail and other documents in response to the subpoena; and they agreed to settle this matter.
OFAC made it clear that Pinnacle was legally responsible for the failure to disclose, despite the fact that they relied on the advice of counsel.
While I don’t know who outside counsel was in this case, you have to be careful when engaging an attorney to represent you in OFAC related matters. The truth is that most lawyers have never even heard of OFAC, much less have any knowledge on how they operate, the types of information they require during an investigation, and how to properly address an administrative subpoena. As a practice area, U.S. economic sanctions are complex and require counsel experienced in dealing with OFAC. As Pinnacle has found out it pays to have the right lawyer when dealing with OFAC.
For more information on how to respond to an OFAC administrative subpoena click here.
The author of this blog is Erich Ferrari, an attorney specializing in OFAC litigation. If you have any questions please contact him at 202-280-6370 at 202-351-6161 or firstname.lastname@example.org.