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Financial Services Law Insights and Observations

Indonesian company settles with OFAC for $1 million for North Korea sanctions violations, enters into deferred prosecution agreement with DOJ

Financial Crimes OFAC Department of Treasury Enforcement Sanctions Settlement Of Interest to Non-US Persons OFAC Designations North Korea DOJ

Financial Crimes

On January 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a more than $1 million settlement with an Indonesian-based paper products manufacturer for 28 apparent violations of the North Korea Sanction Regulations. According to OFAC’s web notice, between 2016 and 2018, the company “exported cigarette paper to entities located in or doing business on behalf of the Democratic People’s Republic of Korea (DPRK),” including a Chinese intermediary that procured paper on behalf of an OFAC-designated company operating under an alias. The company allegedly directed payments for its DPRK-related exports to a U.S. dollar bank account held at a non U.S. bank, leading to 28 wire transfers being cleared through U.S. banks. OFAC noted that while the company initially referenced the DPRK entities on documents such as invoices, packing lists, and bills of lading, it eventually replaced the references with the names of intermediaries located in third countries.

In arriving at the settlement amount, OFAC considered various aggravating factors, including that the company (i) “acted with reckless disregard for U.S. sanctions laws and regulations” by directing DPRK-related payments to its U.S. dollar account; (ii) was aware that management had actual knowledge of the conduct at issue; and (iii) the company’s actions “caused U.S. persons to confer economic benefits to the DPRK and an OFAC-designated person.”

OFAC also considered various mitigating factors, including that the company (i) cooperated with OFAC’s investigation; (ii) has undertaken remedial measures, ceased all dealings with the DPRK, and enhanced its compliance controls and internal policies by, among other things, procuring a sanctions screening service from a third-party provider, implementing a know-your-customer process, and requiring that “all trading companies or agents purchasing goods on behalf of other end-users sign an anti-diversion agreement that includes OFAC sanctions compliance commitments.”

Separately, the DOJ announced that the company agreed to pay a $1.5 million fine and enter into a deferred prosecution agreement for conspiring to commit bank fraud after admitting it deceived U.S. banks in order to trade with the DPRK. The company also “agreed to implement a compliance program designed to prevent and detect violations of U.S. sanctions laws and regulations and to regularly report to the [DOJ] on the implementation of that program.” The company is also required to report violations of relevant U.S. laws to the DOJ and “cooperate in the investigation of such offenses.”

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