Indonesian Company Incurs $1.6 Million Penalty For Breaching US Sanctions.

Earlier this year, PT Bukit Muria Jaya (BMJ), an Indonesian company that supplies cigarette paper products, agreed to pay approximately US$1.6 million in respect of alleged U.S. sanctions and other violations. This is further to a deferred prosecution agreement with the U.S. Department of Justice and a separate agreement with OFAC (the U.S. Office of Foreign Assets Control, which administers and enforces U.S. economic and trade sanctions).
 

In essence, BMJ products were supplied to North Korea using inaccurate paperwork and through fronting intermediaries, concealing the true nature of the transactions.
 

Case details
 

BMJ sold cigarette paper to North Korean companies, as well as to a Chinese intermediary that procured material on behalf of Korea Daesong General Trading Corporation (Daesong), which was sanctioned by the United States in 2010.
 

BMJ initially referred to North Korean entities in its transactional papers, such as invoices, packing lists and bills of lading, but at the request of its customers, certain BMJ sales staff later replaced them with the names of intermediaries located in other countries. BMJ also agreed to accept payments from third parties upon learning that one North Korean customer was having difficulty with its remittances, and to make shipments to fronting entities in third countries.
 

BMJ directed payments for sales to its US dollar account at a non-U.S. bank, which caused 28 wire transfers to clear through U.S. banks. This was the crux of the prosecution – that the falsified and misleading paperwork had concealed the true nature of the dealings and misled U.S. banks into processing transactions related to North Korea and a sanctioned person (Daesong).
 

The $1.6 million payment is below what BMJ could have been penalised. While it has been noted by OFAC that BMJ acted with reckless disregard to U.S. sanctions, the following have been put forward as mitigating factors:
 

• The absence of any known violations by BMJ or penalties in relation to U.S. sanctions in the five years preceding these infringements.

• The transactions in violation of U.S. sanctions represented a small percentage of BMJ’s overall business during the relevant time period.

• BMJ cooperated with the investigation.

• BMJ’s remedial response to the violations was positive: they ceased dealings with North Korea and implemented a new sanctions compliance program that includes: (a) a new Head of Compliance reporting directly to the company’s president; (b) statements from the CEO to company employees encouraging them to report compliance concerns; (c) procurement of sanctions screening services from a third-party provider; (d) an export control and sanctions policy that includes guidance for compliance with U.S. sanctions and identifies red flags to educate employees when to contact BMJ’s compliance division for further assessment; (e) a KYC process that provides for escalation and risk-based review, including consultation with external counsel or background checks, if heightened risks are identified; and (f) a requirement that all trading companies or agents who purchase goods on behalf of other end users sign ‘anti-diversion’ agreements that include OFAC sanctions compliance commitments.
   

Why is this case important?
 

• BMJ has no obvious U.S. connections. The case underscores that U.S. sanctions apply to traders of all nationalities, not just those with U.S. owners, staff, subsidiaries or other U.S. connections. Keep in mind, too, that the relevant transactions were of relatively insignificant value to the company and no directors or officers appear to be directly involved in the violations, yet a prosecution has still occurred. Non-U.S. persons engaged in any international trade and commerce should be aware of and comply with the U.S. sanctions prohibitions applicable to non-U.S. persons.

• The matter is similar to several others in recent times, and re-emphasises that the U.S. authorities are continuing to focus energies on tracking trade with North Korea in Asia. A statement of intent was made in August 2018, when OFAC announced that it would be targeting the shipping industry and others who facilitate illegal shipments to North Korea, and the Treasury Secretary of the time named certain Asian countries as hubs for sanctions evasion.

• Specifically, it confirms that trading organisations should put in place a suitable sanctions compliance program to prevent U.S. sanctions violations. Such a program will help in detecting suspicious transactions and ‘red flags’ that may otherwise be missed when dealing with sanctioned countries/persons whose widespread efforts to evade U.S. and international sanctions are well-known.

• It also confirms that trading contracts should include a ‘sanctions clause’ that, among other things, prohibits the recipient from forwarding goods to sanctioned persons, countries or regions, or acting as agents for such persons.
   

 

For further information, please contact:

 

jonathan.goacher@hilldickinson.com