Lessons From the Recent Aviation Enforcement Action

On February 26, 2020, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a settlement agreement for $7,829,640 with Société Internationale de Télécommunications Aéronautiques SCRL (SITA) to settle its potential liability for 9,256 violations of the Global Terrorism Sanctions Regulations (GTSR) between April 2013 and February 2018. The settlement agreement is three times the actual value of the aggregated violations. This penalty highlights OFAC’s focus on the broader global aviation industry and emphasizes OFAC’s May 2, 2019 Compliance Guidelines. The message we take from the SITA penalty is that a risk-based compliance program must also include means through which to monitor counterparties to contracts to ensure that representations, warranties, end-user, and end-use certifications are being honored. How these contractual provisions are monitored is the challenge – and the onus is on the entity to prove to OFAC that the compliance program and counter-party monitoring is appropriately risk-based.

According to the published settlement, SITA provided commercial and software services subject to U.S. jurisdiction to Mahan Air, Syrian Arab Airlines, Caspian Air, Meraj Air, and Al-Naser Airlines – all currently identified as Specially Designated Nationals (SDNs) for their ties to terrorist networks or involvement in terrorism. Even though SITA terminated many of the services that it was providing to the SDNs and had taken steps to mitigate its sanctions-related risks and potential exposure, it failed to stop providing commercial and software services that ultimately benefitted the SDNs.

After the investigation concluded, OFAC determined that SITA had not voluntarily self-disclosed the violations and lacked a robust compliance program that would have presumably prevented these apparent violations.

This enforcement action is the third aviation-related release from OFAC in the last seven months. In particular, in July 2019, OFAC issued an Aviation Advisory to “highlight for the civil aviation industry, including parties providing services to the industry, Iran’s deceptive practices with respect to aviation matters”. Among other things, OFAC reminded the aviation sector that:

Industry parties who engage in or support unauthorized transfers of U.S.-origin aircraft or related goods, technology, or services to Iran, or who conduct business with designated Iranian airlines, risk OFAC enforcement or sanctions actions. In particular, both U.S. and non-U.S. persons operating in the civil aviation industry face potential civil and criminal consequences for violating OFAC’s sanctions programs, including by engaging in unauthorized transfers of U.S.-origin aircraft or related goods, technology, or services to Iran. Additionally, non-U.S. persons could be designated or made subject to other sanctions actions for engaging in unauthorized activities with persons designated [under certain programs].

Further, on November 7, 2019, OFAC fined Apollo, a U.S. company $210,600 to settle its potential civil liability for 12 apparent violations of the Sudanese Sanctions Regulations (the “SSR”) when it leased three aircraft engines to a UAE entity, which then subleased the engines to a Ukrainian airline which installed the engines on an aircraft of an SDN company. At the time of the apparent violations, the SSR prohibited U.S. persons from dealing in any property or interests in property of the Government of Sudan, and exporting or reexporting directly or indirectly, of goods, technology, or services, from the United States or by U.S. Persons to Sudan. Even though the lease agreements between Apollo and the UAE entity prohibited it from maintaining, operating, flying, or transferring the engines to any countries subject to sanctions, they failed to ensure the lessee abided by the agreement. The message OFAC is sending from the Apollo civil penalty is that an entity (1) must have an OFAC compliance program; (2) must contractually push OFAC compliance obligations out to its counterparties; and (3) must have a form of verification to ensure that the counter-party’s contractual provisions (like end user certifications) are being honored.

Taken together, the two recent enforcement actions and OFAC’s July 2019 advisory serve as an important notice for any person involved in the global aviation industry, but also for international companies of all kinds. It is clear that commercial service provides, financial institutions, or anyone else involved in international business must conduct due diligence to determine whether the proposed activity involves any sanctioned person or territory, whether directly or indirectly. Because sanctions violations are strict liability, failure to conduct adequate due diligence or implement adequate controls may be deemed a violation of U.S. economic sanctions, and subject companies to harsh penalties.