ENFORCEMENT INFORMATION FOR June 8, 2017
American Honda Finance Corporation Settles Potential Liability for Apparent Violations of the Cuban Assets Control Regulations: American Honda Finance Corporation (AHFC), a motor vehicle finance company headquartered in California that specializes in various forms of financing in the United States for purchasers, lessees, and authorized independent dealers of Honda and Acura products, has agreed to remit $87,255 to settle its potential civil liability for 13 apparent violations of the Cuban Assets Control Regulations, 31 C.F.R. part 515 (CACR) (the "Alleged Violations").
Between February 2011 and March 2014, Honda Canada Finance, Inc. (HCFI) — a majority-owned subsidiary of AHFC located in Canada — approved and financed 13 lease agreements between an unaffiliated Honda dealership in Ottawa, Canada and the Embassy of Cuba in connection with the Cuban Embassy’s leasing of several Honda vehicles. The Cuban entity had the word "Cuba" in its name and provided documentation to HCFI demonstrating it was a Government of Cuba entity. Although AHFC and HCFI had policies and procedures in place to review transactions against OFAC’s List of Specially Designated Nationals and Blocked Persons for compliance with U.S. economic sanctions laws, they did not include the names of countries subject to OFAC-administered comprehensive sanctions in their screening system. AHFC and HCFI were not involved in the business of exporting vehicles internationally.
Overall, between February 28, 2011 and March 3, 2014, HCFI approved the financing of 13 lease agreements with the Cuban entity totaling $276,999. Three of the lease agreements, totaling $58,281, were initiated and/or approved by HCFI on or about March 3, 2014 — approximately two months after AHFC submitted its initial voluntary self-disclosure to OFAC regarding similar apparent violations. The total base penalty amount for the 13 Alleged Violations was $138,500.
OFAC has determined that AHFC voluntarily self-disclosed the Alleged Violations to OFAC, and that the Alleged Violations constitute a non-egregious case.
The settlement amount reflects OFAC’s consideration of the following facts and circumstances, pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A. OFAC considered the following to be aggravating factors: AHFC had reason to know of the conduct that led to the Alleged Violations, particularly the transactions that occurred after AHFC had filed its initial voluntary self-disclosure with OFAC; HCFI personnel appear to have had actual knowledge of the Cuban Embassy’s involvement in the lease agreements in question; the Alleged Violations resulted in harm to U.S. sanctions program objectives at the time they occurred; and AHFC is a large and commercially sophisticated financial institution. OFAC considered the following to be mitigating factors: AHFC has not received a penalty notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the Alleged Violations; AHFC took remedial action in response to the Alleged Violations, including by implementing a new policy governing its OFAC policies and proprietary systems; AHFC cooperated with OFAC’s investigation by voluntarily self-disclosing the Alleged Violations, providing detailed and well-organized information in a timely and efficient manner, and by signing and extending a statute of limitations tolling agreement; and while the transactions described above constitute apparent violations of the CACR, OFAC issued a specific license to AHFC in June 2015 regarding the subject leases.
1) Jurisdiction based on Canadian entity being "Subject to the Jurisdiction of the United States" within the meaning of the CACR (515.219).
2) Actions taken are a rare example of a non-U.S. person "Subject to the Jurisdiction of the United States" being found to "facilitate" a transaction for a different non-U.S. person that was not subject to the jurisdiction of the United States. Here the "unaffiliated Honda dealership in Ottawa" was apparently not subject to the jurisdiction of the United States.
The "approval" and "financing" of the agreements between the unrelated non-U.S. person and Cuba is straightforward indirect dealing/facilitation. See WATG Holdings, Inc. (2016) for a similar fact pattern. See comments to Great Western Malting Co. (2012) on Cuba "facilitation" and indirect dealings generally. These violations are characterized as dealing in property in which a blocked person has an interest (515.201), but the conduct covered is of the same type called "facilitation" in the context of IEEPA-based embargo programs.
This is a rare example of what may be “indirect financing” of a prohibited transaction. If the funds HCFI used to “finance” the transaction were provided directly to the Cuban entity—with there being privity of contract—this would have been a flagrant violation of the CACR. Less clear from the text of the regulations themselves, but clear in light of guidance from OFAC [1], is that the provision of funds to a non-sanctioned person (here the unaffiliated Ottawa dealer) to support trade with Cuba is a violation 515.201(b).
[1] See FAC- No. C-138526 - - OFAC Response to Request for interpretive Guidance - Letter from R. Newcomb (OFAC) to J. Kavulich re Indirect Financing