Vietnam Beverage Company Limited OFAC Settlement: $860K

In late 2017, VBCL acquired majority ownership in several Vietnamese alcoholic beverage companies (the "Subsidiaries"). The Subsidiaries exported alcoholic beverages globally, including to legacy customers in or connected to North Korea. Between January 2016 and September 2018, the Subsidiaries executed 26 contracts for the sale and exportation of beer and spirits to North Korea. The contracts were approved by the Subsidiaries' senior managers and signed with two North Korean entities, Korea Samjin Trade Company ("Korea Samjin") and Korea Zo-Ming General Corporation ("Korea Zo-Ming"), and two third-party companies, Sunico Co. Ltd. in Singapore and Alttek Global Corporation in the Seychelles. The Subsidiaries then issued 47 invoices to these parties pursuant to the 26 contracts. Nearly all associated business documents made specific references to North Korea and the receipt of payment in U.S. dollars.

Following issuance of the invoices, the Subsidiaries received 43 wire transfers totaling approximately $1,141,547 between April 2016 and October 2018 from 15 different third-party companies (seven in Hong Kong, four in China, and four in Turkey), as well as the two aforementioned companies in Singapore and the Seychelles, all making payment on behalf of Korea Samjin, Korea Zo-Ming, or unknown entities in North Korea. All 43 wire transfers were processed by U.S. correspondent banks or, in one case, initiated by a foreign branch of a U.S. financial institution. Neither VBCL nor the Subsidiaries had sanctions compliance programs or policies concerned with U.S. sanctions in place at the time.

By issuing invoices in U.S. dollars and subsequently receiving approximately $1,141,547 in payments processed by U.S. financial institutions, the Subsidiaries appear to have caused U.S. financial institutions to export financial services to the DPRK in apparent violation of § 510.206 of the North Korea Sanctions Regulations, 31 C.F.R. part 510 ("NKSR"), and appear to have violated § 510.212 of the NKSR on 43 occasions.

The statutory maximum civil monetary penalty applicable in this matter is $15,829,848. OFAC determined that VBCL did not voluntarily self-disclose the Apparent Violations and that the Apparent Violations constitute a non-egregious case. Accordingly, under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. Part 501, app. A., the base civil monetary penalty equals the sum of the applicable schedule amount for each violation, which is $1,720,000. The settlement amount of $860,000 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

This enforcement action demonstrates how non-U.S. persons in foreign jurisdictions may face sanctions liability, particularly when utilizing the U.S. financial system. Specific risks may arise when non-U.S. persons issue commercial or contractual documentation, or otherwise request payment, in U.S. dollars from other non-U.S. persons, which would likely involve U.S. financial institutions for routine clearing and routing purposes. Such risks may be heightened when operating in or engaging with comprehensively sanctioned jurisdictions, particularly with regard to valued goods and the DPRK. Foreign firms transacting in U.S. dollars should therefore carefully consider such risks when engaging in commercial activities involving the U.S. financial system and implement appropriate mitigation.

In light of the DPRK's efforts to evade U.S. and international sanctions, this matter further illustrates how the absence of a risk-based sanctions compliance program can increase the likelihood of committing a similar potential sanctions violation. An adequate sanctions compliance program should take into account the size and sophistication of a company's business operations, business partners, and consumer base, especially when considering the scale and frequency of sanctions risk assessments, proper due diligence, and thorough compliance training. These compliance elements can not only help identify sanctions exposure associated with comprehensively sanctioned jurisdictions and other sanctioned parties, but can also assist personnel in proactively recognizing indicators of potential sanctions violations and prevent such potential violations from occurring. This case also highlights the importance of conducting a sanctions risk assessment to identify potential areas in which a company may, directly or indirectly, engage with OFAC-prohibited persons, parties, countries, or regions, including an assessment of the geographic location of customers, supply chain, intermediaries, and counter-parties.

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