OFAC Finds "Facilitation" Violation Against Health Product Giant
The Office of Foreign Asset Control (OFAC) reminded the public Thursday of the breadth and danger of the prohibition on "facilitation" of transactions with sanctioned entities and countries and the importance of carefully reviewing compliance implications when a U.S. entity absorbs or otherwise becomes involved in activities of foreign subsidiaries, whether as a result of acquisition or internal restructuring.
In a finding of violation issued Thursday, February 4, 2016, to a U.S. subsidiary of Johnson & Johnson, one of the world's largest health product providers, OFAC asserted that Johnson and Johnson (Middle East) Inc. ("JJME") violated the Sudanese Sanctions Regulations, 31 C.F.R. 538 ("SSR"), when its General Manager for "Emerging Markets, Middle East and North Africa" engaged in "coordinating and supervising" five shipments of "consumer hygiene products" collectively valued at approximately $227,818 from Johnson and Johnson (Egypt) S.A.E. ("JJE") to Khartoum, Sudan, following a November 2009 restructuring through which JJME became directly involved in supervising JJE's transactions. OFAC deemed these actions to be prohibited "facilitation."
Section 538.206 of the SSR prohibits "facilitation by a United States person . . . of the exportation or reexportation of goods, technology, or services from Sudan to any destination, or to Sudan from any location. . . ." Unlike many of the sanctions regulations, the SSR actually defines "facilitation" and explains that, among other things, "to avoid potential liability . . . a U.S. parent corporation must ensure that its foreign subsidiaries act independently of any U.S. person with respect to all transactions and activities relating to the exportation or reexportation of goods, technology, or services between Sudan and any other location including but not limited to business and legal planning; decision making; designing, ordering or transporting goods; and financial, insurance, and other risks." SSR 538.407.
Apart from underscoring the need to pay close attention to actions that could constitute facilitation, OFAC's finding of violation is interesting for its discussion of aggravating and mitigating factors and the fact that it issued a finding of violation in lieu of any monetary penalty. OFAC cited as aggravating factors the lack of OFAC training for JJME's General Manager and the failure to properly consider the implications of OFAC regulations when conducting internal restructuring that placed a U.S. company in charge of sales in Sudan. It also found that JJME acted with "reckless disregard" by making two exports to Sudan after being made aware that it might be subject to U.S. sanctions restrictions. Nonetheless, OFAC did not impose a monetary penalty, apparently considering those aggravating factors to be sufficiently balanced by the following mitigating factors: that the exports were of "consumer hygiene products" that caused limited harm to sanctions objectives; that JJME has no prior OFAC sanctions history; and (perhaps surprisingly to companies that have cooperated and still received a significant penalty) that JJME took remedial action, including conducting an internal investigation, instituting additional compliance training, and cooperating with OFAC's investigation.
In its statement announcing its finding of violation, OFAC highlighted the need for U.S. companies – particularly large, sophisticated entities – to properly train employees on OFAC regulations, especially employees involved with transactions in or to high risk regions. OFAC's finding of a violation against JJME should also serve as a reminder of the breadth of the facilitation prohibition and the need to keep a sharp eye out for OFAC compliance consequences when reorganizing responsibility for international activities.