OFAC Fines Australian Company for Nearly 3,000 Sanctions Violations
The Office of Foreign Assets Control fined Toll Holdings, a Melbourne, Australia-based international freight and logistics company, more than $6.13 million for nearly 3,000 violations of multiple U.S. sanctions programs. OFAC said Toll received illegal payments connected to sea, air and rail shipments through multiple highly sanctioned countries, including North Korea, Iran and Syria. The transactions included sanctioned Iranian airline Mahan Air (see 2111190006) and Iran-based Hafiz Darya Shipping Lines.
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The violations stemmed from Toll's "rapid" business expansion "without a requisite increase in compliance resources," OFAC said. The company began acquiring regional freight forwarding companies in 2007 -- and by 2017 had almost 600 "invoicing, data, payment, and other system applications spread across its various business units" -- but failed to update its compliance program and controls to "keep up with the pace and complexity of its growing operations."
Between January 2013 and February 2019, Toll or its affiliates "originated or caused to be received" 2,958 illegal payments in connection with the shipments to and from North Korea, Iran and Syria, OFAC said. These payments, worth nearly $50 million, were "generally originated or received" by Toll’s overseas units, OFAC said, including 23 of its entities across Asia, Europe, the Middle East and North America.
In May 2015, one of Toll’s banks identified a U.S. dollar transaction involving Syria and restricted a Toll subsidiary’s use of its U.S. dollar account, OFAC said. Afterward, a Toll employee at the company's headquarters instructed other employees in Toll’s United Arab Emirates and South Korean affiliates to "avoid including the names of sanctioned jurisdictions on invoices going forward," OFAC said. The employee at the headquarters was concerned that the Syria-related payment "would disrupt a separate, large impending internal transfer," OFAC said in its enforcement notice. Because of this, OFAC determined that some Toll employees had reason to know that the payments were in potential violation of U.S. sanctions.
After Toll's bank froze the account, the bank continued to raise sanctions compliance concerns with the company, OFAC said. Before it agreed to process any of Toll's transfers, the bank required the company to show documents that proved its transactions didn't violate U.S. sanctions, OFAC said. But the bank continued to be concerned about Toll's "problematic payments and apparent control deficiencies," the agency said, and "threatened to terminate its relationship" with Toll in June 2016. To keep doing business with the bank, Toll promised to abide by all sanctions laws and "attested" to the bank that it wasn't participating in blocked transactions.
As part of the commitment to its bank, Toll decided to cease all business with U.S.-sanctioned countries in June 2016, OFAC said. But even after "repeatedly instructing business units" to stop the shipments," Toll didn't implement compliance policies necessary to prevent the payments, OFAC said. The company also didn't "test whether shipments involved persons located in U.S.-sanctioned countries."
In February 2017, Toll introduced controls that disabled country and location codes for ports and cities in sanctioned countries in an effort to prevent those shipments in its freight management system, OFAC said. Of the nearly 3,000 illegally payments that led to the violations, OFAC said, just 105 occurred after Toll implemented these "hard controls." Toll eventually voluntarily hired an accounting firm to conduct a "forensic examination" of its payment practices and sent its findings to OFAC as part of a voluntary self-disclosure
OFAC said the maximum penalty for the violations was more than $826 million but fined the company $6.13 million due to several mitigating factors, including its "extensive actions" to fix compliance gaps, including conducting a "risk-mapping exercise to identify the root causes of the compliance lapses" and restructuring its compliance division. Toll also created a sanctions compliance training program for its more than 500 employees, introduced risk-based screening of its customers against all restricted party lists, ended "all franchise relationships" and started "enhanced due diligence measures for on-boarding agents."
OFAC also pointed to several aggravating factors, including Toll's "reckless disregard for U.S. economic sanctions laws" and the violations occurring "despite an existing company compliance policy." Toll also "had reason to know" it was committing sanctions violations and didn't take "immediate or adequate steps" following the May 2015 warnings from one of its banks. OFAC also said about 14% of the transactions involved entities sanctioned for terrorism or weapons concerns. Toll didn't immediately respond to a request for comment.
OFAC said the case highlights the importance of "strong internal controls and procedures" to oversee payments involving affiliates that could involve sanctioned parties. Even though "complex payment and invoicing arrangements" may be "normal business conduct," they may pose sanctions risks when "linkages to sanctioned jurisdictions or persons are obscured, or when mechanisms to preclude their involvement with U.S. financial institutions are absent or not implemented effectively," OFAC said.
The agency also said companies should respond "promptly" to compliance concerns when they first arise and look to solve the heart of the issue. "Reminders of established compliance policies alone, may not result in concrete changes to conduct that poses risks of apparent violations," OFAC said.