Haverly Systems, Inc. (“Haverly”), a New Jersey company with offices in Texas and California, has settled with the Office of Foreign Assets Control (OFAC) over two violations of the Ukraine Related Sanctions Regulations (31 C.F.R. part 589 “URSR”).
On August 19, 2015 the company issued two separate invoices to JSC Rosneft (“Rosneft”), an entity on OFAC’s Sectoral Sanctions Identification List (“SSI List”). The invoices were for the licensing of software and purchase of software support services and both contained payment due dates of between 30 and 70 days from the date of issuance which is important because under the URSR it is a violation to have a debt of greater than 90 days maturity with an entity on the SSI List. Months passed, and around the 70-day issuance mark, Rosneft notified Haverly that it needed a corrected tax document in order to process the payment to Haverly. It took Haverly a while to obtain the corrected tax documents and Rosneft finally made payment on the first invoice on May 31, 2016, nearly 9 months after the invoice was issued.
Around the same time the first payment was received Rosneft tried to make payment on the second invoice. It was rejected by financial institutions after they determined the transaction was prohibited by OFAC’s regulations as debt of greater than 90 days maturity of an SSI entity subject to Directive 2. Rosneft tried to make the payment 3 more times between May 31 and October 27, 2016, all of which were rejected by Haverly’s financial institution. Rosneft provided Haverly the messages and information it received from the Society for Worldwide Interbank Financial Telecommunications (SWIFT) regarding the rejected transactions…which stated that the underlying activity may have a nexus to sectoral sanctions. At that time, Haverly did not have a sanctions compliance program and did not know that the delayed collection of payment was in violation of the regulations.
Haverly did eventually re-issue the invoice with a new date at the suggestion of Rosneft and then finally received payment for he re-issued second invoice on January 11, 2017.
Haverly did not self-disclose the violations and have agreed to pay a $75,375 penalty. The statutory maximum penalty for the violations was $590,282 and the base amount was $125,000.
OFAC considered the following to be aggravating factors:
- With respect to the second apparent violation, Haverly demonstrated reckless disregard for U.S. economic sanctions requirements by repeatedly ignoring warning signs that its conduct constituted or likely constituted a violation of OFAC’s regulations;
- Haverly’s management team had actual knowledge of the conduct giving rise to the apparent violations; and
- Haverly did not possess a formal OFAC sanctions compliance program at the time the apparent violations occurred.
OFAC found the following to be mitigating factors:
- The apparent violations resulted in minimal actual harm to the sanctions program objectives of the URSR, and OFAC would have likely authorized the transactions had Haverly requested a license to receive the payments;
- Haverly 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;
- Haverly is a small company with a limited number of employees; and
- Haverly engaged in remedial efforts that included the creation of a Sanctions Compliance Officer position, and implementation of a risk-based compliance program with screening designed to review all current and future clients of Haverly for OFAC purposes.