On July 10, 2012, OFAC announced that Great Western Malting Co. (“Great Western”), a U.S. company, agreed to pay $1.35 million to settle apparent violations of the Cuban Assets Control Regulations. Great Western produces malt for the brewing, distilling and food markets. OFAC’s settlement announcement indicates that Great Western’s U.S.-based personnel provided back-office support for a foreign affiliate’s sales of foreign-origin barley malt to Cuba. This case is noteworthy because the liability appears to be based solely on Great Western’s facilitation of its foreign affiliates’ sales of foreign products.
This case also demonstrates the real value of OFAC’s voluntary disclosure process and the risks of discovery for violations that are often perceived as difficult to detect. OFAC imposed the $1.35 million penalty despite the fact that the goods involved were foreign-origin, the primary activity was by a foreign person, and OFAC licenses were available for this activity. In many cases, similar violations have been closed with a warning only on the basis of a voluntary disclosure. OFAC’s discovery of these violations, which would not typically be easily discovered since it is back-office support, should cause some caution in future decision-making on whether or not to file a voluntary disclosure. It should also be noted that the penalty reflects significant mitigation (total possible base penalty of $5.9 million) at least in part because of Great Western’s substantial cooperation with OFAC after discovery of the violation, including entering into a statute of limitations tolling agreement.
This enforcement action is a warning to companies operating globally with business in the United States and in U.S.-sanctioned countries – particularly U.S.-based companies whose foreign affiliates and subsidiaries conduct business in Cuba, Iran, Sudan, or Syria. Companies should consider whether they have sufficient internal controls in place to prevent inadvertent back-office support or other forms of facilitation of their related companies’ sales in sanctioned countries.