By Tom Reynolds, Export Solutions

Are you shopping for explosives to use in your next gold mining operation?  (Well, of course you are!  Isn’t everyone?)  Here’s some free professional advice:  Don’t purchase these explosives from Cuba.  Specifically, from a state-owned entity that is subject to the Office of Foreign Assets Control’s (OFAC) Cuban Assets Control Regulations (CACR).  Otherwise, you could face a six-figure penalty … not to mention a wave of bad publicity.

Earlier this month, OFAC announced that two U.S. companies – Newmont Corporation and Chisu International Corporation – agreed to settle apparent violations of CACR.  Newmont is a publicly-traded company and the world’s largest gold miner, with 14,000 employees and annual revenue of nearly $12 billion.  Chisu International is a Florida-based corporation that does not appear to have a website.  According to OFAC, Chisu is affiliated with a distributor in Suriname that deals with explosives and explosives accessories.

What happened? Newmont, Chisu & Cuba

The fuse was lit in 2013. That’s when Newmont received a contract from the Government of Suriname to mine gold in that country.  Newmont began looking for distributors to help supply materials for the mine.  One of those Suriname distributors was affiliated with a third-party U.S. corporation.  (Presumably this company is Chisu International, although they are not named specifically in the OFAC press release about Newmont.)  The Suriname distributor imported explosives and explosive accessories from the Unión Latinoamericana de Explosivos (ULAEX) in Cuba.  Because Newmont Suriname is a wholly-owned subsidiary of Newmont Corporation (a “U.S. Person”), these transactions were subject to, and generally prohibited by, CACR.

Details about the transactions help shed light on what went wrong.  With the first shipment, the shipping documentation clearly named ULAEX as the seller and stated the goods were sourced in Cuba.  Following this transaction, Newmont received assurances that no further items for the mine would be sourced with Cuban-origin goods.  However, the company’s distributor proceeded to fulfill additional orders from ULAEX without Newmont’s awareness.  According to OFAC, these shipments occurred because “a Newmont Suriname employee failed to understand the implications of engaging in transactions related to merchandise of Cuban origin.”

Chisu International, for its part, appears to have overseen the processing of purchase orders from ULAEX, while its affiliate in Suriname and another one in Panama, received these goods, including Customs clearing, storage and delivery.  The evidence that these goods were subject to CACR is pretty overwhelming.  For example:

  • The bill of lading clearly names ULAEX as the exporter
  • The import certificate states Cuba as the country of origin
  • Addresses for billing, loading and the port of export on shipping documentation are all located in Cuba

Unlike Newmont (a global corporation with sophisticated processes), Chisu is described by OFAC as a small organization overseen by one individual who failed to understand the prohibitions of U.S. Persons engaging in Cuban-origin goods … even when those transactions occur outside of the United States.

The Big Boom: Assessing the damage

Fast-forward to 2022.  Newmont agreed to pay $141,000 to settle its role in the violations, while Chisu International will pay almost $46,000.

Here is a summary of the aggravating factors cited by OFAC to reach these penalty amounts:

  • Newmont should have known better. The company is a “large and sophisticated organization operating globally as a leading gold producer with experience and expertise in international transactions.”
  • Newmont failed to exercise the minimal degree of caution when evaluating these transactions.
  • Newmont’s employee who evaluated the first transaction did not take the company’s training for export controls and sanctions.
  • Newmont’s purchase orders did not contain any statements about embargoed countries or sanctions prohibitions.
  • The company failed to ask for country-of-origin information from its suppliers.
  • Chisu International also failed to exercise the minimal degree of caution.
  • Furthermore, Chisu had actual knowledge that it was financing Cuban-origin goods.
  • Chisu did not voluntarily disclose the violations. (Newmont, however, did disclose.)

OFAC describes the maximum penalties in this case as $367,000.  Some of the mitigating factors cited for the reduced penalties are:

  • Newmont and its affiliates have not received an OFAC penalty for at least five years before the first apparent violation.
  • Newmont fully cooperated with OFAC (including submitting a voluntary self-disclosure).
  • Newmont has undertaken an extensive, company-wide review of its compliance activities to include enhanced training, restricted parties screening, and new policies/procedures for sanctions compliance.
  • Chisu is a small operation overseen by one person. The company also cooperated with OFAC and has not had any apparent violations in the past five years.

Falling debris: Takeaways and next steps

Incidents like this can send shockwaves through a company (pun intended).  They can also serve as a wakeup call for compliance professionals in any industry.  Here are some key takeaways we can all learn from this case:

  • Do something. No matter how large (or small) your operation is, a company should develop and implement some form of compliance policies and procedures throughout the organization.  These measures may not be perfect … few are … but ignoring the regulations and doing nothing won’t cut it anymore.

 

  • Training.  Training!  Newmont had already established export controls and compliance training, however, at least one employee in this case failed to take that training.  Chisu International appears to have had no knowledge of the CACR or how these regulations impacted its business.  The lesson here is simple:  Train your teams and provide them with the means to continually advance their knowledge of how the regulations impact the company.

 

  • Screen and Scrutinize. We have an inside joke at our firm called “Crayons to Canada.”  Basically, the thinking goes: “Unless they’re exporting crayons to Canada, then we need to take a closer look at this transaction.”  (OK, perhaps this “joke” is one that only trade compliance nerds find amusing.  I’ll admit that.)  But the underlying logic is worth noting.  In this case, a proper screening of all parties to these transactions would have uncovered the sanctions against ULAEX and Cuba.  A closer examination of the relationships between the U.S. and foreign affiliates, and how ULAEX played into that, should have sent alarm bells ringing up the compliance chain of command.  Unfortunately, this did not occur.  Simply put:  if “crayons to Canada” is a good mantra to remember, then “explosives from Cuba” is another version of the same principle.  Companies must get better at screening and evaluating their international business.

 

  • Disclose and Develop. Once again in this case, we see how a Voluntary Self-Disclosure played into the mitigating circumstances and undoubtedly lowered Newmont’s penalty.  No one has a perfect system.  Mistakes happen.  After disclosing, though, it’s important to develop new systems and processes to help prevent them from happening again.

For further reading, check out the OFAC press releases for Newmont and Chisu.  If you need help evaluating or improving your sanctions compliance program, please schedule a no-charge consultation with one of our team members today.  (If you’re just shipping crayons to Canada, you probably don’t need a consultation.  Although it never hurts to double-check!)

Tom Reynolds is the Vice President of Operations for Export Solutions, a consultancy firm which specializes in helping companies with import/export compliance.