The United States’ sanctions are commonly associated with “America’s enemies” like Iran, the DPRK, Cuba and Venezuela. Russia joined this list in 2014, and since last year China has been increasingly prominent among targeted countries. However, when it comes to enforcing restrictions, it is not uncommon for the United States to impose sanctions on its own allies and even American companies.
Washington has long been unparalleled in leveraging restrictive measures as a foreign policy tool, with large teams of professionals dedicated to developing and enforcing sanctions. The United States has also amassed extensive experience in enforcement action designed to ensure compliance with national sanctions laws. The US government, including the Treasury Department, the Department of State, the Department of Commerce, the Department of Justice and a number of other agencies engage in proactive outreach efforts to raise awareness of sanctions among businesses.
Moreover, these institutions have a wide range of tools at their disposal to penalise corporations and individuals for violating sanctions laws. These include criminal charges, freezing assets and civil penalties. These instruments can target both US individuals, as well as foreigners. It has become commonplace for major global corporations to face penalties of this kind. The recent settlement between the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) and Amazon provides a telling example of these practices.
In essence, the OFAC claimed that between 2011 and 2018 Amazon violated multiple sanctions programmes by delivering goods to Iran, Syria and Russia’s Crimea, as well as to the embassies of designated states in third countries. These included Cuba, Iran, North Korea, Sudan and Syria. Additionally, Amazon accepted and processed orders from individuals blocked by the United States under sanctions regulations on weapons of mass destruction proliferators, narcotics trafficking, transnational criminal organisations, etc. All in all, Amazon piled up a record number of sanctions violations for a single probe.
These violations occurred because of gaps and deficiencies in software screening processes that failed to flag transactions involving designated persons or entities. The company processes so many transactions that properly reviewing all of them is impossible. As such, any failure or deficiency in the monitoring system can lead to a sanctions violation. Ensuring compliance is especially challenging when dealing with embassies, since the address provided in the order could refer to a property leased by the diplomatic mission without necessarily reflecting to whom it belongs, and thus making it impervious to automatic screening. The statutory maximum civil monetary penalty Amazon could have faced for these alleged violations exceeds $1 billion.
However, Amazon got away with a much smaller fine of just $134,500, for several reasons. First, the total value of the transactions processed by Amazon in violation of the sanctions programmes totalled only $269,000. Second, these violations were non-intentional, prompting the OFAC to refer to them as constituting “a non-egregious case,” otherwise, the penalty would have been much higher. Third, the company voluntarily disclosed the apparent violations upon learning about them, which was important since voluntary self-disclosure can knock 50 percent off the penalty amount and changes the way the authorities approach the case altogether. Furthermore, Amazon cooperated with the investigation and was extremely loyal in dealing with officials. Finally, Amazon undertook significant remedial measures to improve its compliance programme, which included bolstering compliance training programmes, adding significant headcount to compliance teams, increasing the frequency of its sanctions compliance reviews and, of course, improving screening software.
It has to be noted that it is not uncommon for companies to find themselves on the OFAC’s radar due to software deficiencies. American Express offers one recent example. So far it has avoided penalties, but on April 30, 2020 the OFAC issued a Finding of Violation notice to American Express. Apple had to pay a $466,912 fine after a software failure prevented the company from flagging a transaction with a black listed Slovenian company. General Electric reached a $2,718,581 settlement with the OFAC for alleged violations of the Cuban sanctions regime.
American scholars in sanctions policy, Bryan R. Early and Keith Preble, referred to the OFAC’s enforcement strategy against major corporations as whale-hunting, while calling enforcement efforts against smaller companies a “fishing strategy.” Amazon was a whale. That said, a focus on whale-hunting does not mean that smaller companies can do as they please, since they are also targeted in a substantial number of investigations.
The OFAC has entered into 218 settlements involving penalties for alleged violations over the past decade alone for a total of $5.6 billion. These measures have proven to be effective when dealing with US and major transnational businesses. At least, they have to pay attention. Even in countries like Russia and China, viewed as adversaries by the United States, major corporations are often reluctant when it comes to intentionally violating US sanctions, fearing penalties and other enforcement measures.
However, the international economy cannot be reduced to a US-centric financial system. Sanctions jurisdictions like Iran, Syria and Venezuela create their own economic ecosystems of economic ties that operate independently from major global companies. In fact, many businesses focus on working with these countries and regions, and as such face relentless efforts by the United States to hinder their operations. Unlike global businesses, entities operating within the ecosystems created by designated countries tend to show less loyalty towards US requirements. Should the United States choose to bolster its sanctions against Russia and even more importantly China, their seemingly marginal ecosystems could create a big opening in the edifice of the world’s globalised economy.
Washington has long been unparalleled in leveraging restrictive measures as a foreign policy tool, with large teams of professionals dedicated to developing and enforcing sanctions. The United States has also amassed extensive experience in enforcement action designed to ensure compliance with national sanctions laws. The US government, including the Treasury Department, the Department of State, the Department of Commerce, the Department of Justice and a number of other agencies engage in proactive outreach efforts to raise awareness of sanctions among businesses.
Moreover, these institutions have a wide range of tools at their disposal to penalise corporations and individuals for violating sanctions laws. These include criminal charges, freezing assets and civil penalties. These instruments can target both US individuals, as well as foreigners. It has become commonplace for major global corporations to face penalties of this kind. The recent settlement between the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) and Amazon provides a telling example of these practices.
In essence, the OFAC claimed that between 2011 and 2018 Amazon violated multiple sanctions programmes by delivering goods to Iran, Syria and Russia’s Crimea, as well as to the embassies of designated states in third countries. These included Cuba, Iran, North Korea, Sudan and Syria. Additionally, Amazon accepted and processed orders from individuals blocked by the United States under sanctions regulations on weapons of mass destruction proliferators, narcotics trafficking, transnational criminal organisations, etc. All in all, Amazon piled up a record number of sanctions violations for a single probe.
These violations occurred because of gaps and deficiencies in software screening processes that failed to flag transactions involving designated persons or entities. The company processes so many transactions that properly reviewing all of them is impossible. As such, any failure or deficiency in the monitoring system can lead to a sanctions violation. Ensuring compliance is especially challenging when dealing with embassies, since the address provided in the order could refer to a property leased by the diplomatic mission without necessarily reflecting to whom it belongs, and thus making it impervious to automatic screening. The statutory maximum civil monetary penalty Amazon could have faced for these alleged violations exceeds $1 billion.
However, Amazon got away with a much smaller fine of just $134,500, for several reasons. First, the total value of the transactions processed by Amazon in violation of the sanctions programmes totalled only $269,000. Second, these violations were non-intentional, prompting the OFAC to refer to them as constituting “a non-egregious case,” otherwise, the penalty would have been much higher. Third, the company voluntarily disclosed the apparent violations upon learning about them, which was important since voluntary self-disclosure can knock 50 percent off the penalty amount and changes the way the authorities approach the case altogether. Furthermore, Amazon cooperated with the investigation and was extremely loyal in dealing with officials. Finally, Amazon undertook significant remedial measures to improve its compliance programme, which included bolstering compliance training programmes, adding significant headcount to compliance teams, increasing the frequency of its sanctions compliance reviews and, of course, improving screening software.
It has to be noted that it is not uncommon for companies to find themselves on the OFAC’s radar due to software deficiencies. American Express offers one recent example. So far it has avoided penalties, but on April 30, 2020 the OFAC issued a Finding of Violation notice to American Express. Apple had to pay a $466,912 fine after a software failure prevented the company from flagging a transaction with a black listed Slovenian company. General Electric reached a $2,718,581 settlement with the OFAC for alleged violations of the Cuban sanctions regime.
American scholars in sanctions policy, Bryan R. Early and Keith Preble, referred to the OFAC’s enforcement strategy against major corporations as whale-hunting, while calling enforcement efforts against smaller companies a “fishing strategy.” Amazon was a whale. That said, a focus on whale-hunting does not mean that smaller companies can do as they please, since they are also targeted in a substantial number of investigations.
The OFAC has entered into 218 settlements involving penalties for alleged violations over the past decade alone for a total of $5.6 billion. These measures have proven to be effective when dealing with US and major transnational businesses. At least, they have to pay attention. Even in countries like Russia and China, viewed as adversaries by the United States, major corporations are often reluctant when it comes to intentionally violating US sanctions, fearing penalties and other enforcement measures.
However, the international economy cannot be reduced to a US-centric financial system. Sanctions jurisdictions like Iran, Syria and Venezuela create their own economic ecosystems of economic ties that operate independently from major global companies. In fact, many businesses focus on working with these countries and regions, and as such face relentless efforts by the United States to hinder their operations. Unlike global businesses, entities operating within the ecosystems created by designated countries tend to show less loyalty towards US requirements. Should the United States choose to bolster its sanctions against Russia and even more importantly China, their seemingly marginal ecosystems could create a big opening in the edifice of the world’s globalised economy.
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.
Eurasian Integration in New Realities
18.04.2024
