The U.S. Department of the Treasury’s Office of Foreign Assets Control recently announced that it reached a $175,015 settlement with Pegasus Worldwide Logistics, a California logistics company and freight forwarder, to resolve apparent violations of counter narcotics sanctions and OFAC reporting obligations. According to OFAC, Pegasus arranged for a piece of equipment to be shipped from a sanctioned supplier in China and failed to identify that supplier as sanctioned because of gaps in its sanctions compliance program. OFAC determined that the apparent violations were not voluntarily self-disclosed but were not egregious, a finding that, together with several mitigating factors, contributed to a settlement amount lower than the base civil monetary penalty.
According to the Enforcement Release, the sanctioned supplier was Youli Technology Development Co., Ltd., a Chinese supplier of pill press and packaging equipment. OFAC designated Youli on May 30, 2023, under Executive Order 14059 for shipping machinery to persons in the United States who were making counterfeit pills. After the designation, Youli changed its name to Huizhou Youli Fushi Co., Ltd., but kept the same phone number and email address that appear on OFAC’s Specially Designated Nationals and Blocked Persons List (“SDN List”). In August 2023, a U.S. nutritional supplement company hired Pegasus to coordinate the purchase and shipment of a $5,950 sugar packet-filling machine from Youli. According to OFAC, Pegasus then contacted Youli at an email address listed on the SDN List and filed customs paperwork that included Youli’s listed phone number. Pegasus allegedly screened only the supplier’s new name against the SDN List, which returned no match, even though its own policy required it to screen email addresses, phone numbers, and other identifiers. The U.S. government allegedly informed Pegasus that it detained the machine in November 2023, and it was ultimately seized as blocked property in December 2023. However, according to OFAC, Pegasus chose not to investigate the matter further, went on to pay import fees, and, in February 2024, submitted a certified subpoena response to OFAC denying that it had any responsive information. OFAC reported that the company did not provide a corrected response until August 8, 2024, after OFAC provided it with an arrival notice that documented its role in the shipment.
OFAC determined that this conduct constituted an apparent violation of § 599.201 of the Illicit Drug Trade Sanctions Regulations, which prohibits U.S. persons from dealing with a blocked person or in property in which a blocked person has an interest. OFAC also found that the company apparently violated § 501.602(a) of the Reporting, Procedures and Penalties Regulations six times between February 1 and August 8, 2024, by failing to provide complete information in response to an OFAC administrative subpoena.
OFAC identified several aggravating factors that affected the settlement amount, including Pegasus’s reckless disregard for sanctions requirements, as shown by its failure to screen information it already had and its failure to investigate after the machine was detained. OFAC also found that Pegasus’s conduct supported a SDN’s continued exports to the United States and that its incomplete subpoena response delayed the investigation. OFAC also considered mitigating factors, including Pegasus’s lack of OFAC enforcement history in the previous five years and the relatively low value of the transactions at issue. Finally, OFAC credited Pegasus’s agreement to carry out extensive remedial measures, including its plan to hire an outside sanctions consultant and its commitment to provide OFAC with enhanced reporting for an extended period.
OFAC Recent Actions | OFAC Enforcement Release