Compliance official’s alleged actions key to Comtech sanctions penalty

Comtech has agreed to pay $894,111 to settle its potential civil liability for sales and services to a government-owned entity in Sudan in violation of OFAC sanctions at the time. OFAC deemed the case egregious, though Comtech received credit for voluntarily self-disclosing the apparent violations.

The apparent violations are estimated to have taken place from June 2014 to October 2015, according to OFAC’s web notice and related settlement agreement. During that time, Comtech and subsidiary EF Data allegedly exported warrantied satellite equipment indirectly to and facilitated services and training knowingly for the Sudan Civil Aviation Authority (SCAA).

The middleman in the transaction was an unnamed Canadian satellite communications equipment manufacturer, though the sales agreements still listed Sudan as the final destination of the equipment, OFAC established.

A month prior to shipping the equipment to the Canadian company, a credit manager at EF Data raised concerns about potential export issues regarding the Sudan end location. Third-party screening software at EF Data also sounded similar alarms. In response, EF Data’s director of logistics and export compliance official “attempted to transfer OFAC compliance obligations from EF Data to the Canadian Company” by “sending an acknowledgment letter for the Canadian Company to complete indicating that it was informed of its responsibility to obtain all required authorizations,” according to the settlement agreement.

“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.”

OFAC

“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,” OFAC explained.

Regardless of these red flags, EF Data shipped the satellite equipment to the Canadian company, which in turn sent it off to Sudan in the form of a system of satellite-enabled earth-based telecommunications stations. From there, Memotec, a subsidiary of EF Data, trained SCAA employees on the equipment’s use.

In October 2014, Comtech disclosed the apparent violations to OFAC. The senior vice president of Comtech and president of EF Data subsequently sent an email to the export compliance official telling her to inform Memotec an OFAC license was needed to continue providing warrantee services on the equipment at SCAA. While the license application was pending—EF Data reapplied for a license in February 2015 after its initial application filed in November 2014 was denied—Memotec continued to provide telephone support to SCAA until October 2015, according to OFAC.

Further, OFAC noted the export compliance official was directly involved in the approval of a warranty request in March 2015 despite not having the license.

“EF Data demonstrated reckless disregard for U.S. sanctions requirements and failed to exercise a minimal degree of caution or care by approving warranty services for equipment provided to SCAA while an OFAC license application was pending (and ultimately denied),” OFAC listed as an aggravating factor.

Another key aggravating factor was that the export compliance official “manipulated” a memo to Comtech and Memotec personnel as part of the OFAC subpoena process. Her email “appears to have been doctored … to minimize her knowledge of the end use destination of the equipment in subsequent discussions with her supervisor, the Comtech Vice President, Office of Trade Compliance,” the settlement agreement states. This required OFAC to “expend significant additional time and resources to build an accurate administrative record of the Apparent Violations.”

“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,” OFAC stated.

As part of the stipulations of the settlement, Comtech agreed to add a new position of chief trade compliance officer at its New York headquarters, in addition to adding a vice president of trade compliance and staff to support that position at EF Data’s Arizona facility.