By: Danielle Hatch
Apollo Aviation Group, LLC (“Apollo”), a Florida company that invests in aviation by acquiring, refurbishing, marketing, and leasing commercial jet aircraft, engines and related assets, and disassembly and resale of aircraft and components has agreed to pay $210,600 for 12 violations of the Sudanese Sanctions Regulations (SSR).
The company, now d/b/a Carlyle Aviation Partners, Ltd. (in October 2018 Apollo was acquired by the Carlyle Group) didn’t maliciously violate the regulations with a sneaky scheme that I often write about. This case is more of a situation where a company trusted their customer, they didn’t check up on their customer to make sure they were following the rules (they didn’t), so now they are paying the price.
Apollo leased three aircraft engines to an entity in the United Arab Emirates (Company A), which then subleased the engines to a Ukrainian airline (Company B) which then installed the engines on an aircraft it wet leased (aviation leasing arrangement whereby the lessor operates the aircraft on behalf of the lessee, with the lessor typically providing the crew, maintenance, and insurance, as well as the aircraft itself) to Sudan Airways. At the time of these transactions, Sudan Airways was on the Specially Designated Nationals and Blocked Person (SDN List) making the wet lease an OFAC violation since the SSR prohibits U.S. persons from dealing in any property or interests in property of the Government of Sudan, as well as the exportation or reexportation, directly or indirectly, of goods, technology, or services, from the United States or by U.S. persons to Sudan. It should be noted that on October 12, 2017 Sudan Airways was removed from the SDN List.
The story begins when Apollo entered into a lease with Company A in July 2013 for two aircraft engines. Company A then leased both engines to Company B. Company B then installed both engines on an aircraft that was wet leased to Sudan Airways who used the engines for approximately four months (between November 2014-February 2015). The initial lease between Company A and Apollo ended in March 2015 and that is when both engines were returned to Apollo. During that same time, Apollo leased a third engine to Company A (they didn’t know about Sudan Airways at this point). Company A then subleased the third engine to Company B who installed it on another wet leased Sudan Airways aircraft (used from May 2015-September 2015). In August 2015, Apollo discovered through the engine records from the first two leased engines that they had been installed on an aircraft that had been leased to Sudan Airways and used in Sudan. After digging further, Apollo discovered that the third engine was currently on an aircraft that was wet leased to Sudan Airways and was being used in Sudan. They demanded the return of the engine from Company B and received it in September 2015.
Apollo did enter into a lease agreement with Company A and that lease agreement did contain a provision which prohibited them from maintaining, operating, flying, or transferring the engines to any countries subject to United States or United Nations sanctions. Unfortunately, this clause simply is not enough to keep a company from bearing the burden of violations. Since Apollo didn’t monitor Company A (and Company B) to make sure that they were abiding by the lease agreement and the sanctions clause they are responsible for where the engines ended up during the leases.
OFAC determined the following to be aggravating factors:
- The unauthorized use of Apollo’s aircraft engines in Sudan by an entity on the SDN List resulted in harm to US sanctions program objectives;
- Apollo is a large and sophisticated entity; and
- Although Company A appears to have violated the terms of its engine lease prohibiting any use in sanctioned countries, Apollo failed to monitor or otherwise verify the actual whereabouts of these aircraft engines during the life of its leases.
OFAC determined the following to be mitigating factors:
- No Apollo personnel had actual knowledge of the conduct leading to the apparent violations;
- Apollo has not received a penalty notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the apparent violations;
- Apollo implemented several remedial measures in response to the apparent violations, including investment in additional compliance personnel and systems; and
- Apollo provided information to OFAC in a clear, concise, and well-organized manner.
The statutory maximum civil monetary penalty for this case is $3 million, since Apollo did self-disclose the violations and the case is non-egregious the settlement amount was reduced to $210,600.
Read Full Enforcement Information: https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20191107_apollo.pdf