SkyGeek Logistics, Inc. OFAC Settlement: $22.2K (2024)

Between January 10, 2024 and March 18, 2024, SkyGeek made shipments and attempted refunds to two UAE-based aircraft parts suppliers, Flavic FZE (Flavic) and Mirage Air Craft Services Sole Proprietorship LLC (Mirage), after both had been designated to the SDN List pursuant to Executive Order (E.O.) 14024 under the Russian Harmful Foreign Activities Sanctions Regulations (RuHSR), 31 C.F.R. part 587, in violation of 31 C.F.R. § 587.201.

OFAC added Flavic to the SDN List on November 2, 2023 for operating in the technology sector of the Russian Federation economy. Prior to its designation, Flavic had placed multiple orders with SkyGeek, some of which were on hold due to supply backlogs; three additional orders placed on the date of its designation were also put on hold, as SkyGeek's screening software did not yet reflect that day's designation, resulting in no sanctions flag. On December 28, 2023, Flavic notified SkyGeek that it had ceased operations and requested that outstanding orders be canceled and payments refunded. Because SkyGeek's compliance protocol at the time was not to re-screen previously approved parties, it neither re-screened Flavic for sanctions issues nor took other sanctions compliance measures before initiating the refund. SkyGeek initiated a refund to Flavic for $16,842.21 on January 10, 2024, which a downstream bank then blocked.

OFAC added Mirage to the SDN List on February 23, 2024 for operating in the aerospace sector of the Russian Federation economy. After its designation, Mirage requested a refund for the canceled remainder of a prior order. On March 18, 2024, SkyGeek initiated a $669.42 wire transfer to Mirage for the refunded items, which a downstream bank also blocked. Separately, between March 4 and March 8, 2024, prior to making the refund payment but after Mirage's designation, SkyGeek shipped four orders of basic goods, such as paints, coatings, film release agents, and tapes, valued at $3,429.76. Although SkyGeek had updated its controls in February 2024 to require rescreening of customers prior to issuing refunds, it failed to identify that Mirage was designated when it made the shipments and attempted refund payment in March. In total, SkyGeek attempted two payments totaling $17,511.63 and sent four shipments totaling $3,429.76 to the two blocked persons.

The statutory maximum civil monetary penalty applicable in this matter is $2,208,816. OFAC determined that SkyGeek's conduct was not egregious, and that four of the six apparent violative transactions were voluntarily self-disclosed and that the remaining two were not. Under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A, the base civil monetary penalty for the self-disclosed apparent violations equals the sum of one-half of the transaction value for each such apparent violation, and the base civil monetary penalty for the apparent violations that were not self-disclosed equals the applicable schedule amount. The two base penalties total $27,715. The settlement amount of $22,172 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

This case underscores the sanctions risks to companies operating in sensitive industries and jurisdictions, and how such risks can be compounded when operating in both. Companies operating in any of the sectors Treasury has determined enable Russia's ability to wage war on Ukraine, including aerospace and technology, should exercise vigilance in ensuring they are not dealing with sanctioned persons. Such care is all the more critical when operating in high-risk jurisdictions.

It is essential that a company's controls be commensurate with its risks, as assessed with reference to OFAC's A Framework for OFAC Compliance Commitments, and that jurisdictional, industry, customer, and other key considerations are accounted for in its policies and procedures.

This case also highlights the importance of implementing appropriate risk-based controls over the course of a transaction's "life cycle" to ensure compliance with OFAC sanctions. Because OFAC's SDN List is frequently updated, and the addition of blocked persons may occur after initial checks occur or relationships are established, ensuring that ongoing risk-based screening occurs can help avoid inadvertent violations.

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