US Supplier Fined by OFAC After Shipping to Sanctioned Firms Doing Business With Russia
A New York-based aviation parts supplier will pay $22,172 to the Office of Foreign Assets Control to settle Russia-related sanctions violations it allegedly committed in early 2024. The company, SkyGeek Logistics, made shipments and attempted refunds to two United Arab Emirates companies that had been sanctioned for supplying equipment and technology to Russia, OFAC said.
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SkyGeek voluntarily disclosed some of the potential violations, which OFAC called non-egregious. The agency said it could have imposed a maximum civil penalty of more than $2.2 million but settled on a lesser amount because the company cooperated with OFAC and took “significant remedial efforts,” including by updating its compliance controls, introducing new compliance training for employees, hiring a new sanctions screening software vendor and stopping sales to certain countries.
OFAC said SkyGeek did business with UAE-based Flavic FZE and Mirage Air Craft Services Sole Proprietorship LLC between Jan. 10 and March 18, 2024, after both had been added to the agency’s Specially Designated Nationals List. Flavic was added Nov. 2, 2023, and Mirage was listed Feb. 23, 2024.
Flavic, which was designated for importing and exporting aviation equipment and technology to and from Russia, had placed and received several orders from SkyGeek in the months before it was officially added to the SDN List, OFAC said. It also placed and paid for another three orders on the date it was added to the SDN List. SkyGeek scanned those orders for possible sanctions issues, but its screening software didn’t yet reflect OFAC’s designation announcement of Flavic earlier that day, so OFAC said they weren’t flagged in SkyGeek’s system.
On Dec. 28, 2023, Flavic told SkyGeek that it had stopped operations, asking to cancel some of its previous orders and receive refunds. Even though Flavic had been subject to U.S. sanctions for more than a month, SkyGeek canceled the orders and processed the refunds, OFAC said, adding that the company didn’t typically re-screen previously approved parties.
SkyGeek initiated a refund to Flavic for $16,842.21 on Jan. 10, 2024, but a “downstream” bank blocked the transaction.
Like Flavic, Mirage also placed an order with SkyGeek several months before it was added to the SDN List. SkyGeek “partially” fulfilled that order in December 2023 and Mirage canceled the remainder of the order the following month. On Feb. 29, 2024, after Mirage was added to the SDN List, the company asked SkyGeek for a refund for its canceled order, and SkyGeek processed that refund for $669.42 on March 18. That refund was again blocked by a bank.
OFAC said SkyGeek also shipped other items to Mirage after it was added to the SDN List, including about $3,000 worth of paints, coatings, film release agents and tapes from January to March 2024. Although SkyGeek began rescreening customers in February, “it nevertheless failed to identify that Mirage was designated when it made the shipments,” OFAC said.
In total, OFAC said SkyGeek tried to process two payments totaling $17,511.63 and sent four other shipments totaling $3,429.76 to both companies after they were sanctioned. OFAC said the company voluntarily disclosed four of the six violations, and two of the violations were reported to OFAC by a financial institution.
The agency pointed to several mitigating factors that led to the reduced penalty, including that SkyGeek hadn’t received a penalty notice in the previous five years and that the company improved its compliance program, including through a “comprehensive business review” of its sales to certain regions that posed a higher risk for sanctions evasion. SkyGeek also stopped all of its sales to 45 jurisdictions, updated its controls to require rescreening of all customers that ask for refunds, began using more “robust search logic” for sanctions matches, and more.
OFAC also pointed to aggravating factors, including that SkyGeek “failed to exercise due caution or care” for its sanctions compliance obligations because it didn’t “institute controls commensurate with the jurisdictional and industry-related sanctions risks.” The agency also said SkyGeek had “reason to know” that its payments and refunds involved sanctioned companies, noting Flavic had been on the SDN List for 56 days before the company asked for its orders to be canceled and refunded. SkyGeek refunded Mirage 25 days after it was designated.
OFAC also said SkyGeek’s shipments “directly benefited” a sanctioned company helping Russia in its war against Ukraine. “While the value of the shipments was relatively low, SkyGeek’s provision of goods to such a company undermined U.S. sanctions objectives and may have contributed to Russian military capabilities,” the agency said.
This case highlights the importance of firms carrying out customer due diligence, especially to make sure they’re not doing business with companies sanctioned for aiding Russia, OFAC said. It also underscores the importance of compliance controls over the “life cycle” of a transaction and the need to stay updated with SDN List changes.
SkyGeek didn't immediately respond to a request for comment.