OFAC Fines Honda For Complying with Canadian Law

Posted by at 9:25 am on June 9, 2017
Category: Cuba SanctionsOFAC

Image via https://pixabay.com/p-1202440/?no_redirect [Public Domain]Apparently Cuban diplomats in Cuba like to drive spiffy new Hondas (as opposed to the somewhat older cars almost everybody else in Cuba drives). But, because a dealership in Ottawa financed leases on those cars for the Cuban Embassy through Honda Canada Finance Inc. (“HCFI”), a subsidiary of California-based American Honda Finance Corporation (“AHFC”), there was all hell — or rather $87,255 — to pay to OFAC.

OFAC went out of its way to point out a not-uncommon deficiency in HCFI’s screening process:

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 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.

Many screening processes simply check names against lists and stop there. So, HCFI screened “Embassy of Cuba” and when that did not show up in the SDN list, the leases were issued. I can’t tell you how many times I’ve seen something like this.

As usual, and longtime readers will know where I’m going, OFAC works itself up in a high dudgeon over these leases without bothering to mention at all the Canadian Foreign Extraterritorial Measures Act.  That law makes it clearly illegal  for HCFI, a Canadian company in Canada and fully subject to Canadian law, to deny financing based on the U.S embargo of Cuba.  This applicable Canadian law is not even mentioned as a mitigating factor. Once again, it appears that the U.S. is telling one of its closest allies that we don’t really care what their laws are.

But wait, there’s something in the OFAC release that hints that this might not be entirely the case. The transactions leading to the penalty occurred between 2011 and 2014. OFAC lists as a mitigating factor that “it issued a specific license to AHFC in June 2015 regarding the subject leases.” In most cases, getting an OFAC license to deal with the Cuban government in a third-country would be considered a near impossibility. One has to wonder whether AHFC, after it disclosed the violations, applied for a license and relied on the Canadian Foreign Extraterritorial Measures Act as a basis.  This might indeed be the reason why the licenses were granted here and why HCFI wasn’t forced to repo the diplomats’ cars.

The takeaway here is that U.S. companies with foreign subsidiaries in countries with statutes blocking compliance with the Cuba embargo might consider applying for a license and basing the request on the blocking statute.  Because the U.S. company is applying for the license, the application itself would not violate the Canadian blocking law, which only covers “persons in Canada” from complying with the U.S. embargo on Cuba.  Given the massive delays at OFAC in getting license granted this may not be a practical solution. But it is, at least, something to consider.


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