Unforced Errors in the World of Export and International Trade Compliance Violations That You Need to Know About

By Brian Hodgson, General Manager, Global Trade Intelligence, Descartes Systems Group

Denied party screening and global trade compliance has never been more business critical.

Transacting with a new customer, supplier, or partner without the right processes in place to screen them against global sanctions is all it takes to make an unforced error that can quickly create significant issues for your business.

You will have heard the term “unforced errors” in sports, especially in tennis. It’s used to describe mistakes that could have been avoided through better training and playing intelligently with focus. The concept applies to many aspects of business, including export and international trade compliance, because knowledge, processes and focus will allow companies to adhere to the straight and narrow, and, in doing so, actually enable growth.

Enforcement actions taken by regulatory agencies and sanctioning bodies can result in heavy fines and potentially criminal penalties — and those actions have effects far beyond the monetary value. Every agency publicizes enforcement actions, meaning your partners, competitors, and clients will be aware of sanction violations, even if they were non-malicious errors.

The Russia-Ukraine conflict rapidly resulted in new sanctions and regulations that companies worldwide must understand. Practices, policies, and technologies must protect organizations against inadvertently violating these sanctions. Sanctioning bodies have long provided explicit instructions, such as denied party screening lists. But more recently, these bodies have also begun to publish directional guidance for which the objectives are still clear but there are partial or non-existent lists to screen against.

An example of directional guidance is the Military End User (MEU) and Military Intelligence End User (MIEU) that place additional restrictions on transacting with foreign parties determined to be ‘military end users,’ which also extends to ‘military end-use.’ Another example is an area of regulation that is gaining increased focus the U.S. Forced Labor Prevention Act (UFLPA) for which the U.S. Customs and Border Protection (CBP) has provided operational guidance and its interpretation of the UFLPA laws and regulation. Additionally, the OFAC 50-Percent Sanctioned Ownership Rule which further complicates identifying sanctioned parties, as any company with a combined 50% ownership by sanctioned parties is then sanctioned by extension. Similar ownership rules are also enforced in other jurisdictions, including the European Union and United Kingdom.

Agencies involved with export and international trade compliance enforcement will generally consider intent when determining the number of fines and whether criminal charges will also be imposed. However, unforced errors will not be overlooked.

It is vital to upgrade your processes and technologies to identify any sanctioned or denied parties you may accidentally or unwittingly transact with. Keep reading to learn the severity of fines and penalties imposed by key agencies to help understand the true cost of an unforced export and international trade compliance error.

Export and International Trade Compliance Fines from Global Regulatory Agencies

Office of Foreign Assets Control (OFAC) Fines and Penalties

The U.S. Department of the Treasury’s OFAC frequently publicizes civil fines and penalties imposed on specific companies for sanction compliance violations. We can see how fines have steadily increased since 2020.

Table 1: Annual Sum of Monetary Penalties from OFAC Enforcement Actions 2019 – 2023

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Bureau of Industry Security (BIS) Penalties

The Bureau of Industry Security (BIS), an agency under the U.S. Department of Commerce, releases annual fiscal year reports detailing total fines, among other policy updates and changes. In April 2023, the BIS imposed a $300 million penalty – the largest standalone administrative penalty in the agency’s history – to an American company for violations that stemmed from unforced errors such as unjustifiable assumptions made about items subject to Export Administration Regulations (EAR).

Table 2: Annual Sum of Monetary Penalties from BIS Enforcement Actions 2018 – 2021

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U.S. Department of State

The Department of State does not publish aggregated reports of annual fines, rather issuing public notices for each fine and penalty. The fines and penalties fall into two categories:

You can review the State’s publicized fines and penalties per company for additional details about their actions.

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HM Treasury Office of Financial Sanctions Implementation (OFSI) UK

For organizations that are subject to UK sanctions and regulations, the Office of Financial Sanctions Implementation is responsible for enforcing criminal and monetary penalties for sanction compliance violations.

A look at enforcement actions that have been taken over the last 4 years by OFSI can be found here.

Potentially Avoidable Export Compliance Violations That Resulted in Fines and Penalties

Mistakes, originating from human error or system failure, have been the cause of many sanctions violations, rather than malicious intent to breach regulatory obligations. Below, you can see notable sanction compliance violations that may have been avoided with the proper tools and processes in place. These examples emphasize the need for a robust denied party screening solution that can protect the organization on a daily basis.

Global Enforcement Actions Resulting from Unforced Errors

Violation	Unforced Errors	Penalty Amount
A U.S. data storage company violated export control laws by shipping hard disk drives to a company listed on the BIS Entity List	-The company misinterpreted the Foreign-Produced Direct Product rule and made unlicensed sales -Failed to center compliance in its rush to capitalize on perceived market opportunity while its competitors ceased operations -Acted without the appropriate sense of caution, due diligence, and export compliance expertise -Ignored guidance information from the regulatory agency and advisory notification from business partners.	$300,000,000
A multinational technology company, headquartered in the U.S. violated OFAC sanctions and BIS Export Administration Regulations.	-Failed to perform complete denied party screening of its ultimate end-users and third-party relationships (such as resellers and agents).	$2,980,265
U.S. based cookware coating manufacturer fined for doing business with Iran.	-Erroneously thought they could do business with Iranian firms as long as there were no direct connections between it and the sanctioned Mideast nation.	$824,314
U.S. cryptocurrency payment processor breached multiple regulations related to sanctioned countries.	-Operated for nearly two years without a denied party screening program. -Subsequently performed incomplete denied party screening for 4 years. -Also did not have IP Address Geolocation Screening	$24,280,829
Hong Kong-based financial institution violated the Iranian Transactions and Sanctions Regulations (ITSR).	-Lacked robust workflows / centralized visibility into the actions of non-compliant employees.	$5,228,298
U.S. online money transmitter violation of multiple sanctions related to Specially Designated Nationals (SDN Lists) and sanctioned regions.	-Weak denied party screening software that failed to flag blocked persons. -Failure to screen complete information such as location and business identifier codes (BICs). -Automatically allowing flagged transactions without review.	$1,385,901
International payment processor violated the Foreign Narcotics Kingpin Sanctions Regulations (FNKSR).	-Ineffective adjudication and escalation workflow. -Lack of centralized oversight. -Insufficient human expertise.	$430,500
Puerto Rican bank provided services which violated the Venezuela Sanctions Regulations.	-Slow to update its denied party screening content to match new regulations. -Inadvertently operated bank accounts for restricted parties for 14 months.	$255,973
A Bank in the UK breached OFSI/EU Ukraine regulations and made funds available to sanctioned entities.	-Did not implement proper denied party screening according to its risk profile. -Inappropriately exempted sanctioned entities from its screening procedures.	£20,470,000 ($25.5M)

Here is a digest of other companies (highlighted in an earlier article in the Export Compliance Journal) which also unwittingly broke export and international trade compliance rules and were penalized.:

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The True Cost of Export and international Trade Compliance Violations

What does violating sanctions really cost your business? It’s not just the direct monetary fines. There are other issues that can affect the organization and which can have long-term effects, including:

The Margin of Error Has Never Been Thinner

Abiding by sanctions and restrictions has never been more crucial, and a single error, even unforced, can significantly impact your business. Adopting technologies and processes to improve your restricted party screening practices can go far in helping your business reduce the risk of fines and other penalties.

The BIS details several red flag indicators to consider as you improve your denied party screening practices. Red flag indicators include:

You can see how these indicators require your teams and processes to know how customers intentionally trying to evade sanctions may act. If they’re successful, your company will make an unforced error that would have otherwise been avoided.

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Export and International Trade Compliance Has Become More Complex — Descartes Can Help

You don’t need malicious intent to violate export regulations; you may inadvertently violate them by lacking the right processes and technologies.

Descartes offers restricted party screening and global trade intelligence technologies to help your company avoid making unforced errors that can significantly impact your organization.

Descartes Visual Compliance and Descartes MK solutions are flexible and modular, allowing organizations to pick the specific and exact functionality and content they need for their particular compliance needs and scale up later as and when necessary. Also read what our customers are saying about Descartes Denied Party Screening on G2 – an online third-party business software review platform.

Ready to bolster your export and international trade compliance practices to mitigate the risk of costly fines and penalties? Contact us today to speak to a global trade compliance specialist. You can also read this essential buyer’s guide to denied party screening to help you select a solution that fits your needs.