The long reach of U.S. law continues to affect persons, and companies around the world. Another non- U.S. company held liable by U.S. Authorities for not having a sanctions compliance program.
An Indonesian supplier of cigarette paper products, PT Bukit Muria Jaya (“BMJ”), has agreed to pay a fine of $1,561,570 this week, and enter into a deferred prosecution agreement (“DPA”) with the Justice Department (“DOJ”) for conspiring to commit bank fraud in connection with the shipment of products to North Korean customers.
BMJ, which is incorporated in Indonesia, has also entered into a settlement agreement with the Treasury Department’s Office of Foreign Assets Control (“OFAC”).OFAC announced a $1,016,000 settlement with BMJ earlier this week.
“BMJ intentionally deceived U.S. banks and undermined the integrity of our financial system in order to continue doing business with North Korea,” said Acting U.S. Attorney Michael R. Sherwin for the District of Columbia. “We want to communicate to all those persons and businesses who are contemplating engaging in similar schemes to violate U.S. sanctions on North Korea that using front companies and fraudulent invoices will not protect you. We will find you and prosecute you.”
What did BMJ do exactly to upset both OFAC and the DOJ?
- BMJ exported cigarette paper to entities located in or doing business on behalf of North Korea,
including to an intermediary in China that was sourcing cigarette paper from BMJ on behalf of
Korea Daesong General Trading Corporation (“Daesong”), an entity designated by OFAC. Daesong was operating under an alias.
- BMJ initially mentioned the North Korean entities on its transactional documents, but after learning that one of its North Korean customers was having difficulty executing payments to BMJ, BMJ personnel agreed to accept payments from third parties that were otherwise unrelated to the transactions. At the request of its customers certain BMJ sales employees replaced such references with the names of intermediaries located in third countries, including on invoices, packing lists, and bills of lading.
- Then , BMJ directed payments for its North Korea exports to its U.S. dollar bank account at a non-U.S. bank. Accepting these third-party payments evaded the sanctions monitoring and compliance systems of U.S. banks, inducing them into executing prohibited transactions. This caused 28 wire transfers related to such exports to clear through U.S. banks. At the time, U.S. sanctions on North Korea prevented, among other things, correspondent banks in the United States from processing wire transfers on behalf of customers located in North Korea.
OFAC determined that BMJ violated § 510.212 of the North Korea Sanctions Regulations (NKSR), 31 C.F.R. part 510, when it caused U.S. banks to:
(i) deal in the property or interests in property of a Specially Designated National or Blocked
(ii) export financial services to North Korea; or
(iii) otherwise facilitate export transactions that would have been prohibited if engaged in by U.S. persons in apparent violation of §§ 510.201, 510.206, and 510.211 of the NKSR.
OFAC further determined that BMJ did not voluntarily self-disclose these apparent violations, and that these apparent violations constitute a non-egregious case.
In parallel, the DOJ determined:
“Through a sophisticated and illegal multinational scheme, BMJ intentionally obfuscated the true nature of its transactions in order to sell its wares to North Korea,” said Assistant Attorney General for National Security John Demers. “BMJ duped U.S. banks into processing payments in violation of our sanctions on North Korea. Strict enforcement of the sanctions regime pressures North Korea to move away from engaging in dangerous and belligerent activities, including weapons of mass destruction proliferation. The Department is committed to taking such enforcement actions in the hope that one day North Korea will reintegrate itself into the community of nations.”
BMJ admitted and accepted responsibility for its criminal conduct and agreed to pay fines commensurate with the offense. BMJ also agreed to implement a sanctions compliance program designed to prevent and detect violations of U.S. sanctions laws and regulations and to regularly report to the Justice Department on the implementation of that program. BMJ also committed to report violations of relevant U.S. laws to the Justice Department and to cooperate in the investigation of such offenses.
The new sanctions compliance program includes:
• A new head of the Compliance Department who reports directly to the company’s
president, and statements from the Chief Executive Officer to company employees
encouraging them to report compliance concerns;
• Procurement of sanctions screening services from a third-party provider;
• A formal written 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;
• A know-your-customer process that provides for escalation and risk-based review,
including consultation with external counsel or background checks, if heightened
risks are identified; and
• A requirement that all trading companies or agents who purchase goods on behalf of
other end-users sign an anti-diversion agreement that includes OFAC sanctions
The approximate commercial value of BMJ’s exports to the North Korea was $959,111. When compared to a $2.5M penalty (not including investigation costs and lawyer fees) one may quickly assess that the risks of doing business with sanctioned entities/countries outweigh the benefits.
BMJ is a company that operates globally, so in the U.S. Authorities’ eyes, it is sophisticated enough to have a risk-based sanctions compliance program as well as a formal export control and sanctions policy.
Non-U.S. companies always incur a risk of violating U.S. Sanctions when conducting OFAC prohibited transactions in USD, even while using a non-U.S. bank as was the case here. OFAC reminds us that non-U.S. persons can violate U.S. sanctions by causing U.S. persons to engage in prohibited transactions. All persons, including non-U.S. persons, engaged in international trade and commerce should be aware of sanctions prohibitions applicable to non U.S. persons who involve U.S. persons in such transactions. When in doubt, it is always prudent to consult OFAC’s Framework for Compliance Commitments.