United States Fashion Industry Association Export Control Compliance & OFAC Sanctions

Transcription

1 United States Fashion Industry Association Export Control Compliance & OFAC Sanctions July 23, 2014

2 Standard Disclaimer You (and each of your employees, representatives, or other agents) are expressly authorized to disclose the structure and tax, import, and export aspects of the transaction to any and all persons, without limitation of any kind on such disclosure The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that is will continue to be accurate in the future. No one should act on such information without appropriate professional advise after a thorough examination of the particular situation ANY TAX, IMPORT OR EXPORT ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, IMPORTER OR EXPORTER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN The advice or other information in this document was prepared for the sole benefit of KPMG s client and may not be relied upon by any other person or organization. KPMG accepts no responsibility or liability in respect of this document to any person or organization other than KPMG s client 1

3 Today s Topics OFAC s Mission Specially Designated Nationals and Blocked Persons List Licenses Enforcement Penalties Recent OFAC Challenges Economic Sanctions Compliance Program 2

4 OFAC s Mission OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals OFAC targets foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States OFAC acts under Presidential national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze assets under U.S. jurisdiction Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close cooperation with allied governments Sanctions are intended to: Deny the target access to the U.S. financial system and U.S. markets Deprive the target of the use of its assets 3

5 The Specially Designated Nationals and Blocked Persons List (the SDN list ) There are about 6,000 individuals and entities on the list The list is updated frequently It is unlawful for U.S. persons to conduct transactions with, provide services to, or have other dealings with those on the SDN list, unless the transactions are exempt or licensed by OFAC Also unlawful for U.S. persons to facilitate others doing so All property in which an SDN has an interest is blocked U.S. persons must block the property and report the blocking to OFAC within 10 days 4

6 Licenses Licenses authorize otherwise prohibited activity General License (GL): Authorizes a particular type of transaction, for a particular class of persons Embodied in the regulations, and posted on OFAC s website Specific License: Written document issued by OFAC, on a case-by-case basis, in response to a written license application, authorizing a particular transaction OFAC must consult with other government departments and agencies on some license applications OFAC generally does not publish specific licenses OFAC sometimes publishes statements of licensing policy for example, TSRA (food and medicine) 5

7 Enforcement The General Factors Willful or Reckless Violation of Law Awareness of Conduct at Issue Harm to Sanctions Program Objectives Individual Characteristics Compliance Program Remedial Response Cooperation with OFAC Timing of Apparent Violation in Relation to Imposition of Sanctions Other Enforcement Action Future Compliance/Deterrence Effect Other Relevant Factors on a Case-by-Case Basis 6

8 Enforcement Base Penalty Matrix NO (1) Base penalty matrix Egregious case YES (3) YES Voluntary Self- Disclosure NO One-Half of Transaction Value (capped at $125,000 per violation/$32,500 per TWEA violation) (2) Applicable Schedule Amount (capped at $250,000 per violation/$65,000 per TWEA violation) One-Half of Applicable Statutory Maximum (4) Applicable Statutory Maximum Where the base penalty amount would otherwise exceed the statutory maximum civil penalty amount applicable to an apparent violation, the base penalty amount shall equal such applicable statutory maximum amount. 7

9 Enforcement Statutory Maximum to Base Penalty Example 1 One IEEPA Violation, $ Voluntarily Self- Disclosed? Egregious? Base Penalty No Box 1: $ Yes Yes Box 3: $125, Statutory Maximum: $250, No Box 2: $1, No Yes Box 4: $250,

10 Enforcement Statutory Maximum to Base Penalty Example IEEPA Violations, $1, each Voluntarily Self- Disclosed? Egregious? Base Penalty No Box 1: $75, Yes Yes Box 3: $12.5M Statutory Maximum: $25M No Box 2: $1M No Yes Box 4: $25M 9

11 Enforcement Statutory Maximum to Base Penalty Example IEEPA Violations, $1, each Voluntarily Self- Disclosed? Egregious? Base Penalty No Box 1: $750, Yes Yes Box 3: $125M Statutory Maximum: $250M No Box 2: $10M No Yes Box 4: $250M 10

12 Enforcement Statutory Maximum to Base Penalty Example 4 One IEEPA Violation, $2.8B Voluntarily Self- Disclosed? Egregious? Base Penalty No Box 1: $125, Yes Yes Box 3: $2.8B Statutory Maximum: $5.6B No Box 2: $250, No Yes Box 4: $5.6B 11

13 Enforcement The Deck is Stacked in OFAC s Favor Strict Liability No ALJ (except Cuba) To contest a penalty, the Subject Person must raise an affirmative defense and/or counterclaim in a government collection suit, or affirmatively sue OFAC High burden: must show that OFAC s action was arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with law (Administrative Procedure Act) Nobody has ever sued OFAC let alone successfully to challenge a penalty Once OFAC determines the presumptive penalty amount, it has completed the overwhelming majority of its work Therefore, Subject Persons have little or no leverage with OFAC The traditional leverage a target has with DOJ in criminal cases a high burden of proof for the government, saving resources by avoiding trial, ensuring certainty of outcome, avoiding litigation risk, etc. are all off the table with OFAC 12

14 Recent Sanctions Challenges Russia/Ukraine sanctions Overnight, what had been lawful was now unlawful Companies owned by designated persons 50% rule Ownership vs. control Iran Relaxation of sanctions/jpoa But: ton of bricks Misunderstanding the regulations Changes create uncertainty for business Puts a premium on awareness of risk 13

15 Common Causes of Violations Lack of awareness of OFAC sanctions and requirements Misunderstanding the regulations Using outdated SDN lists Failing to escalate apparent SDN matches Licensing failures Failing to comply with terms and conditions of a license Expired licenses Jumping the gun: proceeding after applying, but before OFAC has granted the license Miscommunication within the entity Indirect transactions (re-exports, transshipments, etc.) Relying on freight forwarders, agents, etc. 14

16 Economic Sanctions Compliance Program Compliance programs are not required by law, but: Sound business practice Help prevent violations Existence and extent of a compliance program is an important factor for OFAC Cost of compliance vs. potential cost of violations Any company with significant international business should consider its OFAC risk, and have a risk-based compliance program in place Compliance programs should be tailored to the risks and needs of the particular company 15

17 Economic Sanctions Compliance Program Overview Corporate Governance Internal Controls Risk Assessment Responsible Persons Elements of an OFAC compliance program Training Issue Escalation Monitoring/ Auditing 16

18 Elements of a Compliance Program Corporate Governance Compliance starts at the top Promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law Senior management should support, and be perceived as supporting, compliance 17

19 Elements of a Compliance Program Risk Assessment Risk assessment is the foundation of an effective compliance program Customers, products/services, geographic locations Know your customer ( KYC ) Size, stability, locations? In countries/regions with ties to sanctioned countries/entities/persons? For example, diversion countries such as the UAE For example, channel partner does business in Iran In countries/regions with lax regulations 18

20 Elements of a Compliance Program Risk Assessment (continued) Types of products For example, U.S. retail products highly desired in sanctioned countries Types of services Size, commercial sophistication and location of company, subsidiaries, branches Re-exports and transshipments Use of brokers, agents and intermediaries 19

21 Elements of a Compliance Program Internal Controls Screen against the SDN (and other Restricted Party lists) list Review transactions and transaction parties (e.g., customer, bank, freight forwarders) Screen appropriate identifying information, such as name and address Account for name variations, misspellings, etc. Responsibility for third-party screeners Escalate possible matches and complex/ambiguous cases Use the current SDN list The list is updated frequently Frequency of review should be risk-based Periodically test screening logic 20

22 Elements of a Compliance Program Internal Controls (continued) Manage licenses Report blocked transactions Recordkeeping Customer information Account information Shipping/freight forwarding information Bills of lading; air waybills; ports of loading/discharge/transshipment; etc. Update the compliance program, as appropriate Regulatory Business Integrate sanctions compliance processes into department or business processes 21

23 Elements of a Compliance Program Responsible Persons Designate a qualified person as the lead, manager or officer for sanctions compliance Should have appropriate knowledge and experience Sufficient resources and authority Access to, and support of, senior management Develop a written compliance program Strong lines of communication Designate persons in each department or business as functional leads 22

24 Elements of a Compliance Program Training For all employees, appropriate to their roles New hires Scope and frequency should be risk-based (annually at a minimum) Maintain records as to content and attendance 23

25 Elements of a Compliance Program Issue Escalation Provide clear guidance on how to report potential OFAC issues to prevent unlawful transactions from occurring or to possibly minimize any penalty should a violation occur Identifies potential violations of company policy or law Details internal investigation process and communications with the government Describes voluntary disclosure process Outlines process for corrective actions 24

26 Elements of a Compliance Program Monitoring/Auditing Purpose of monitoring/auditing: Evaluate the effectiveness of the program Fix any identified deficiencies Identify past remedial steps Assess the effectiveness of remedial steps Enhance understanding of trends and risks Facilitate responding to changing circumstances 25

27 Elements of a Compliance Program Monitoring/Auditing (continued) Characteristics of effective monitoring/auditing: Independent: internal audit, outside auditors, consultants, or other qualified independent third party Continuing basis (quarterly, annually or periodically depending on the area to be reviewed) Commensurate with risk 26

28 Questions? 27

29 THANK YOU Charles Steele Managing Director, Advisory Investigations KPMG LLP 1801 K Street NW Suite Washington, DC (202) charlessteele@kpmg.com Robert Kearsley Senior Manager, Trade and Customs Practice KPMG LLP 3975 Freedom Circle Mission Towers 1 Suite 100 Santa Clara, CA (408) rkearsley@kpmg.com