Denied Party Digest

Valuable information about denied party screening

The Department of Treasury, Office of Foreign Assets Control (OFAC) has announced a settlement with The General Electric Company ("GE") for accepting 289 payments from The Cobalt Refinery Company ("Cobalt") in Canada, a party on the SDN list:

Since June 1995, Cobalt had been identified as a Specially Designated National (SDN) of Cuba and appeared on OFAC’s List of Specially Designated Nationals and Blocked Persons (the "SDN List"). Publicly available information also demonstrated that GE’s former Canadian customer is a corporation with strong historic and then-current economic ties to the Cuban mining industry through its business partnerships and joint ventures with the Cuban government. Cobalt is one of three entities owned by a public joint venture between GE’s Canadian customer and the Cuban government. From at least 1996 until the GE Companies terminated their relationship with their Canadian customer, the GE Companies maintained — and renewed on at least 18 occasions — this customer relationship despite the obvious sanctions risk posed by the relationship.

While the GE Companies negotiated and entered into contracts with GE’s Canadian customer, and sent all of their invoices to GE’s Canadian customer, Cobalt paid the GE Companies for its goods and services in more than 65 percent of the total transactions. The GE Companies approved Cobalt as a third-party payer and, over a four-year period, failed to appropriately recognize the significant and widely published relationship between Cobalt and their Canadian customer and did not undertake sufficient diligence into their customer's activities. The GE Companies deposited all checks received from Cobalt into GE’s bank account at a Canadian financial institution. The checks contained Cobalt’s full legal entity name as it appears on OFAC’s SDN List as well as an acronym for Cobalt (“Corefco”), but the GE Companies’ sanctions screening software, which screened only the abbreviation of the SDN’s name, never alerted on Cobalt’s name. all relevant times, GE had reason to know of its customer’s specific and longstanding relationship with Cobalt. GE should have treated its Canadian customer as higher risk due to the customer’s publicly known joint venture with Cuba and substantial reliance on Cuban-origin ore.

The $2,718,581 settlement, considering both aggravating and mitigating factors, is less than the statutory maximum civil monetary penalty of $18,785,000.

This case highlights the importance of complete screening and due diligence. The SDN listing does not include Corefco, but screening beyond the abbreviation (even just the word "Cobalt") would have turned up the SDN listing. It is also noteworthy that OFAC stated that research into publicly available information should have raised red flags about potential Cuba sanctions violations.  It also serves as a reminder to screen all business relationships, including third-party payers.

Click here for the full settlement announcement.