Fracht FWO Inc. OFAC Settlement: $1.6M (2025)

In May 2022, a major manufacturer contacted Fracht's Mexico affiliate to secure urgent transport of a shipment of car parts from Mexico to Argentina. The Mexico affiliate lacked the requisite expertise, capacity, and resources to fulfill the request and sought Fracht's assistance. Fracht sought to identify an available aircraft without success and ultimately contacted a freight forwarder logistics broker in Mexico (the "Broker"), recently recommended by a mutual contact. In internal discussions, Fracht senior executives expressed concern over satisfying the customer's manufacturing needs and retaining their business if Fracht did not imminently find a suitable aircraft.

On May 28, 2022, Fracht entered a charter contract with the Broker naming Empresa de Transporte Aéreocargo del Sur S.A. ("EMTRASUR") as the carrier, a wholly owned subsidiary of CONVIASA, the OFAC-designated Venezuelan state airline blocked since 2019 under Executive Order 13884 and specifically identified on the SDN List on February 7, 2020. The contract specified tail number YV-3531 and the Broker provided Fracht's Vice President of Airfreight with the flight itinerary, showing the aircraft would arrive in Mexico from Venezuela and that the route included a layover in Venezuela before completing its journey to Argentina. The Vice President of Airfreight shared this information with Fracht's Vice President of Strategic Development. Despite these red flags, the Vice President of Airfreight executed the contract without conducting sanctions screening or internal legal review, contrary to Fracht's compliance policies and procedures. Shortly after executing the contract, Fracht paid the Broker $885,000, of which $825,000 went to EMTRASUR.

The aircraft had previously borne tail number EP-MND and was added to the SDN List on September 12, 2012, as blocked property of designated Iranian airline Mahan Air. Around October 2021, Mahan Air transferred the aircraft to CONVIASA/EMTRASUR, which changed its tail number to YV-3531; this transfer did not unblock the aircraft, which remained on the SDN List under its former tail number and traceable through its unchanged manufacturer's serial number. Mahan Air continued to coordinate the aircraft's use after the transfer, providing operations training and maintenance services, and the aircraft also carried an Iranian crew.

When the aircraft arrived on June 4, 2022, two days late, the ground crew notified Fracht that the aircraft could not accommodate the full cargo. The CEO of EMTRASUR advised that Fracht would owe a $110,000 late fee for additional loading time. Fracht's CEO, upon learning through a group chat that EMTRASUR was a subsidiary of CONVIASA, was unaware that either company was blocked, and deferred to the senior executive group's decision to continue with the aircraft and pay the fee. Fracht paid the $110,000 invoice on June 7, 2022. Fracht's receipt of air freight services from EMTRASUR and compensation to EMTRASUR in two transactions worth $995,000 constituted two apparent violations of § 591.201 of the Venezuela Sanctions Regulations, 31 C.F.R. part 591 (VSR). Fracht's indirect use of the aircraft through the Broker and EMTRASUR constituted apparent violations of § 544.201 of the Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. part 544 (WMDPSR), and § 594.204 of the Global Terrorism Sanctions Regulations, 31 C.F.R. part 594 (GTSR). The services of the Iranian flight crew constituted apparent violations of § 560.206 of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR).

OFAC found that Fracht did not voluntarily self-disclose the Apparent Violations. Although Fracht self-initiated a submission to OFAC describing the relevant transactions, OFAC and other U.S. government agencies already knew of the blocked aircraft's chartering and detention in Argentina and the attendant sanctions risks to the parties involved before Fracht's disclosure. OFAC also found that the Apparent Violations constitute an egregious case. Under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A, the base civil monetary penalty applicable in this matter equals the statutory maximum of $2,147,700. The settlement amount of $1,610,775 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

This enforcement action highlights the numerous types of sanctions risks that intermediaries and service providers involved in international trade, such as members of the freight and logistics industry, may encounter. Such intermediaries operate at the center of trade transactions and may deal with multiple counterparties, including shippers, carriers, vendors, owners, operators, brokers, affiliates, and agents, which themselves may often represent the interests of third parties. Companies should be informed of the sanctions risks presented by dealing, directly or indirectly, with blocked counterparties and their assets, including aircraft, vessels, and other property. Such property may be blocked by virtue of their ownership by blocked persons, whether or not they are identified on OFAC's SDN List.

This enforcement action also highlights the importance of instituting strong internal controls and procedures and ensuring they are followed, including by affiliates, subsidiaries, employees, and agents. A well-designed sanctions compliance program is only effective if it is adhered to, even in the face of urgent business demands. Key employees had several opportunities to follow critical compliance policies and procedures designed to prevent such occurrences. Decisions to prioritize expediency, even in the face of red flags, can result in apparent violations.

This enforcement action also highlights the benefits of immediately remedying identified compliance deficiencies and cooperating with OFAC's investigation.

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