Comtech OFAC Settlement: $894.1K (2020)

From June 25, 2014 to October 19, 2015, Comtech and EF Data appear to have violated the Sudanese Sanctions Regulations, 31 C.F.R. part 538 (SSR), four times by indirectly exporting satellite equipment under warranty, facilitating ongoing telephone support, and facilitating training, all with knowledge that the ultimate end-user was the Sudan Civil Aviation Authority (SCAA).

In February 2014, EF Data and its wholly owned Montreal-based subsidiary Memotec, Inc. ("Memotec") prepared a price quote for satellite equipment, telephone support, and technical training for a Canadian satellite communications equipment manufacturer (the "Canadian Company"). The sales agreement listed Sudan as the ultimate destination and obligated Memotec to provide support and training in connection with the equipment.

Before shipping, multiple warning signs arose: EF Data's Credit Manager alerted senior managers to potential export issues tied to the Sudan end-user; a document from the Canadian Company confirmed that the ultimate consignee was SCAA; and EF Data's third-party compliance screening software flagged OFAC export restrictions for Sudan. Rather than halt the transaction, EF Data's former Director of Logistics and Export Compliance Official attempted to transfer EF Data's OFAC compliance obligations to the Canadian Company.

EF Data shipped the equipment in two shipments on June 25 and June 27, 2014. The Canadian Company integrated the satellite equipment into an Aeronautical V-SAT Network and shipped it to SCAA at the Khartoum Airport on July 31, 2014, for use at 14 locations in Sudan. From September 29 to October 2, 2014, Memotec trained seven SCAA employees on the equipment in Montreal.

After Comtech filed a voluntary self-disclosure with OFAC on October 24, 2014, EF Data applied for an OFAC license on November 18, 2014 to cover services for SCAA. Despite the pending application, Memotec continued providing telephone support through October 19, 2015. In March 2015, EF Data's former Director of Logistics and Export Compliance Official also approved a warranty request to loan and export four hardware units from the United States to the Canadian Company to resolve an SCAA hardware problem. OFAC denied EF Data's license application on March 13, 2016.

The statutory maximum civil monetary penalty was $1,168,772. OFAC determined that Comtech and EF Data voluntarily self-disclosed the Apparent Violations and that the Apparent Violations constitute an egregious case. Accordingly, under OFAC's Economic Sanctions Enforcement Guidelines, the base civil monetary penalty was $584,386. The settlement amount of $894,111 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

This case highlights the importance not only of investing in adequate internal controls to identify, interdict, and escalate prohibited transactions, but also of developing internal checks and balances so individual employees are not able to override those controls and approve otherwise prohibited transactions. This case also demonstrates the risks of proceeding with transactions while a license application is pending with OFAC with respect to those transactions. Additionally, companies engaging in high-risk international transactions should understand their obligations under OFAC regulations and recognize that they cannot shift those obligations onto their foreign customers or counterparties.

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