Law360, New York (June 03, 2014, 10:07 AM ET) -- The U.S. Department of Treasury's Office of Foreign Assets Control recently concluded regulatory enforcement actions against three companies for alleged violations of the Cuban Assets Control Regulations (CACR), 31 C.F.R. Part 515.
On April 18, 2014, OFAC announced a settlement with CWT BV, in which CWT, a Dutch company with majority U.S. ownership, agreed to pay $6 million to resolve charges that it had violated the CACR. Separately, on May 6, 2014, OFAC announced that Decolar.com Inc., a company incorporated in Delaware and headquartered in Argentina, had agreed to pay $3 million to resolve potential violations allegedly committed by its foreign subsidiaries. Finally, on May 8, 2014, OFAC concluded a settlement with New York-based American International Group Inc., in which AIG agreed to pay $300,000 to settle allegations that three of its Canadian subsidiaries had violated the CACR.
These actions show that OFAC continues to target non-U.S. companies that engage in unauthorized transactions involving Cuba or Cuban nationals. In particular, U.S. companies that own or control foreign subsidiaries should be aware of the risks that may arise under the CACR.
OFAC alleged that from August 2006 to November 2012, CWT’s business units, most of which are located outside of the United States, provided services for travel to or from Cuba for 44,430 persons. By providing these services, OFAC claimed, CWT had violated the CACR by dealing in property in which Cuba or its nationals had an interest. Although CWT is incorporated in the Netherlands, OFAC exercised jurisdiction over the company on the basis that, since 2006, the majority of its ownership had been held by U.S. persons.
In order to resolve potential civil liability related to the allegations, CWT agreed to pay $5,990,490. According to OFAC, the base penalty was $11,093,500, taking into account that CWT had self-disclosed the potential violations and that the vast majority occurred prior to that disclosure. As aggravating factors, OFAC identified the number of alleged violations, the length of time involved, the company’s lack of care in carrying on the activity for more than four years before realizing it was subject to U.S. jurisdiction, its lack of a compliance program during that period, and its level of commercial sophistication. Among mitigating factors, OFAC indicated that CWT had not been issued a penalty in the previous five years, had provided substantial cooperation during the investigation, and had since taken significant remedial actions.
OFAC alleged that from March 2009 to March 2012, Decolar’s foreign subsidiaries assisted, without authorization, 17,836 persons in arranging hotel accommodations in Cuba and/or flights between Cuba and countries other than the United States. By doing so, OFAC claimed, Decolar dealt in property in which Cuba or Cuban nationals had an interest, thereby violating the CACR.
Decolar agreed to pay $2,809,800 to settle these allegations. According to the settlement, the base penalty was $4,460,000. Decolar had voluntarily notified OFAC of the potential violations, all of which occurred prior to that notification. OFAC considered the following to be aggravating factors: Decolar had demonstrated reckless disregard for U.S. sanctions requirements by unreasonably relying on a third party’s oral assurances (not specified in the Web posting) that the travel services did not require an OFAC license; Decolar’s senior management was aware of the activity; Decolar’s was commercially sophisticated; Decolar lacked an adequate OFAC compliance program; and the activity caused “significant harm to US sanctions program objectives.” Among mitigating factors, OFAC considered that Decolar had not been subject to an enforcement action in the previous five years, had derived a very small percentage of its overall business from the services, had discontinued the services upon learning of the violations, had cooperated in the investigation, and had since implemented an OFAC compliance program.
The Decolar settlement is particularly notable in that OFAC exercised jurisdiction over Decolar purely by virtue of its incorporation in Delaware. Decolar is headquartered in Argentina, operates primarily in Latin America, and does not appear to have any U.S. operations, other than a website hosted on a U.S. server and the offer of services related to travel to and from the United States. However, because it chose to organize under the laws of the United States, Decolar was subject to U.S. jurisdiction under the CACR.
FAC alleged that between January 2006 and March 2009, two of AIG’s Canadian subsidiaries insured a Canadian corporate entity against risks in Cuba, providing that entity with comprehensive general liability, directors’ and officers’ excess liability, and pollution liability policies. According to OFAC, these policies generated an estimated $486,137.71 in premiums. Additionally, OFAC alleged that from January to October of 2006, one of the subsidiaries provided directors’ and officers’ insurance to three Cuban joint venture partners of a Canadian corporation, producing an additional estimated $55,578.08 in premiums. OFAC did not identify the two subsidiaries in its Web posting.
Furthermore, OFAC claimed that from March 2006 to September 2008, a third AIG Canadian subsidiary, identified as Travel Guard Canada, provided 3,446 travel insurance policies to individuals who had identified Cuba as their destination, producing $337,973.25 in premiums against $96,910.47 in claims.
OFAC alleged that, collectively, the subsidiaries’ actions resulted in 3,560 apparent violations of the CACR.
AIG agreed to pay $279,038 to settle potential civil liability related to these allegations. OFAC stated that the base penalty was $413,390, taking into account that AIG had self-disclosed and that the allegations were not egregious. Among aggravating factors, OFAC considered that members of AIG had actual knowledge of the policies, that AIG’s compliance programs were inadequate, and that the alleged violations harmed US objectives. OFAC identified as mitigating factors that AIG had not received a penalty notice or committed a violation in the previous five years, had cooperated with the investigation, and had subsequently taken remedial action.
OFAC’s settlements with CWT, Decolar and AIG demonstrate that OFAC will continue to target the activities of U.S.-owned, -controlled or -incorporated companies, wherever located, for enforcement under the CACR. Entities subject to U.S. jurisdiction under the CACR are advised to take appropriate measures to ensure companywide compliance, including, if necessary, enhanced oversight of any foreign subsidiaries potentially dealing with Cuba or Cuban nationals. At the same time, companies seeking to achieve compliance with US law need to be mindful of “blocking statutes” in non-US jurisdictions that can confound or complicate global compliance with the CACR. Notably, it appears that two of these enforcement actions involved activity in jurisdictions (Canada and the Netherlands) that are known to have such blocking statutes.
Finally, it should be noted that all three of the actions described above related at least in part to the provision of travel services. While it is not clear whether these settlements forecast increased focus on the travel industry relative to other industries, companies should be aware that OFAC interprets the CACR’s restrictions on dealing in Cuban property broadly, and will take action against companies subject to U.S. jurisdiction where it believes there is evidence of unauthorized business dealings involving Cuba.