OFAC: Apple shows ‘reckless disregard’ for sanctions in ‘non-egregious’ violation

Apple was fined for apparent violations of the Foreign Narcotics Kingpin Sanctions Regulations by dealing in the property or interests in property of Slovenian software company SIS—a firm listed on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List) as a significant foreign narcotics trafficker. The alleged violations are said to have taken place from around Feb. 24, 2015, to about May 9, 2017, according to OFAC.

Specifically, Apple hosted, sold, and facilitated the transfer of SIS’s software applications and associated content. OFAC described the behavior as “reckless disregard for U.S. sanctions requirements” when considering the length of time of the apparent violations and multiple points of failure in Apple’s sanctions compliance program.

At issue was Apple’s App Store, which, at the time, screened individuals identified as “developers,” but did not screen all of the individual users identified in an App Store account against the SDN List. Thus, Savo Stjepanovic, a director and majority owner of SIS and the “account administrator” of the company’s App Store developer account, was not identified by Apple’s screening process. Stjepanovic was also designated on OFAC’s SDN List.

“On the day of designation, any property in which SIS or Stjepanovic had an interest became blocked, and any transactions or dealings in such property by Apple, a U.S. person, were prohibited,” OFAC explained. “Nonetheless, Apple continued to host software applications and associated content … owned by SIS on the App Store, allowed downloads and sales of the blocked SIS apps, received payments from App Store users downloading the blocked SIS apps, permitted SIS to transfer and sell its apps to two other developers, and remitted funds on a monthly basis to SIS for the sales of the blocked SIS apps.”

Enhancements to Apple’s sanctions screening tool helped the company eventually identify SIS as a sanctioned entity in February 2017, and Apple’s finance team halted payments to the SIS account.

Apple voluntarily disclosed the apparent violations to OFAC, which deemed the case “non-egregious” despite its criticism of Apple’s sanctions compliance program. Mitigating factors considered by OFAC in its enforcement included the following:

• The volume and total amount of payments underlying the apparent violations was not significant compared to the total volume of transactions undertaken by Apple on an annual basis.
• Apple has not received a penalty notice or Finding of Violation from OFAC in the five years preceding the date of the transaction giving rise to the apparent violations.
• Apple responded to numerous requests for information in a prompt manner.

Also, Apple terminated the conduct that led to the apparent violations and increased the role of its global export and sanctions compliance senior manager in its escalation and review process. The enhancements helped Apple avoid a statutory maximum civil monetary penalty in the case that could have reached as high as approximately $74.3 million.