The verdict against Dan Bunkering, Bunker Holding, as well as the chairman of Dan Bunkering and CEO of Bunker Holding, is monumental not only because it is a rare example of a criminal conviction for EU sanctions compliance failures, but because it confirms the scope and expectations for what it means to comply with EU sanctions.
In particular, the verdict confirms: 1) the benchmark for sanctions compliance, 2) that senior management have personal liability for their decisions on sanctions compliance and 3) there are real costs for failing to comply.
The most important lesson from this verdict though is that the situation was entirely preventable. If your company is looking for help establishing an appropriate sanctions compliance program to effectively and efficiently manage your company’s sanctions risk to prevent facing similar circumstances contact us at email@example.com
The Benchmark of Sanctions Compliance: Known or “Should have Known”
The court affirmed that failing to take reasonable action to ensure compliance with sanctions is at best negligence and at worst an intentional violation of sanctions. The verdict makes clear that the responsibility for complying with sanctions does not end with just the direct parties of a transaction but extends to companies taking reasonable steps to ensure that the ultimate end use and user of the products won’t be in violation of sanctions.
In other words, the benchmark for compliance is that companies should know their activity will not violate EU sanctions or at least make every reasonable effort to ensure they tried to know, and therefore can demonstrate that it was unreasonable that they should have known the activity would violate EU sanctions. For this case, the verdict makes clear that the court found all the defendants failed the benchmark of should have known. The red flags of the transactions were easily identifiable and that ignoring them to proceed with the transactions was an intentional violation of EU sanctions.
As the verdict makes clear, the red flags evidencing that the defendants should have known the activity would violate EU sanctions were a new customer which is an agent for the Russian military wanting to acquire jet fuel by ship-to-ship transfer in the eastern Mediterranean after and the imposition of EU sanctions specifically targeting jet fuel destined for Syria in December 2014 and it was widely reported that the Russian military had started performing air raids in Syria in September 2015.
“The majority of the judges found that T1 [Dan Bunkering] for all 33 trades must have realized that it was overwhelmingly probable that the jet fuel would be used by the Russian military in Syria. The majority thus found that T1 [Dan Bunkering] for all 33 trades committed an intentional violation of EU sanctions, emphasizing, among other things, that the trades were entered into by Russian employees at T1 [Dan Bunkering]’s branch office in Kaliningrad, where one must have been aware of the Russian intervention in Syria. It was also emphasized that the two Russian companies had not purchased jet fuel from T1 [Dan Bunkering] prior to October 2015, the amount of jet fuel delivered, and T1 [Dan Bunkering]’s knowledge that the two companies were general agents of the Russian fleet, which is why the jet fuel would be used by the Russian military.”
The court also affirmed that the decision by senior management of the group to not take immediate action to stop the trades after Dan Bunkering was approached by the Danish government is negligent. Even though Bunker Holding and it’s CEO were not conducting the day-to-day operations for these trades, as the head of the Group they made approvals for the deals and had the clear ability and capability to stop the trades based on their senior position in the group.
In other words, the verdict makes clear that when senior management have the ability to take action and choose not to do anything is negligent because they knew activity was being conducted in violation of EU sanctions.
“The Court of Appeal unanimously found that both T2 [Bunker Holding] and T3 [Chairman/CEO] for the last 8 trades that took place in February to May 2017, had contributed to a negligent violation of EU sanctions, as following the Danish Business Authority’s inquiry to T1 [Dan Bunkering] in December 2016 and the subsequent internal investigation into the group’s activities, T2 [Bunker Holding] and T3 [Chairman/CEO] should have realized that the Russian company was supplying jet fuel for use in Syria in violation of EU sanctions, and that T2 [Bunker Holding] and T3 [Chairman/CEO] could and should have stopped trading.”
Senior Managers have Personal Liability for Sanctions Compliance
Throughout the case the defense attempted to argue that a holding company nor its management should be held responsible for the activities of its subsidiaries, the court however rejected this argument. This verdict makes clear that senior managers are directly liable and responsible for the sanctions compliance of the entire group, including subsidiaries, and risk prison time for not stopping violations of EU sanctions because they knew or should have known of the activity of the businesses that they control.
“T3 [Chairman/CEO] has been sentenced to 4 months in prison, which has been made conditional. The court has hereby emphasized, among other things, that T3 [Chairman/CEO] is punished for a negligent violation of the sanctions, as well as the decision processing time [between the notice of inquiry by the Danish Business Authority and stopping the supplies].”
Failure to Comply has Real Costs
The verdict confirms once again that prevention is always the cheaper option. The forfeiture of profit from the transactions and a fine of double the profit of the transactions for a total of 3 times the initial business profit demonstrates the real cost of failure to comply. By spending only a fraction of the profit forfeiture and direct fine, and much less when considering the legal and reputational costs the defendants have incurred, it would have been possible to prevent this entire episode by having a proper sanctions compliance program in place.
“By the court’s judgment, T1 [Dan Bunkering] has been fined DKK 30 million, and T2 [Bunker Holding] has been fined DKK 4 million. Both fines are measured on the basis of the companies’ profits from the trades, so that the fine for T1’s [Dan Bunkering] intentional violation of the rules is measured at approximately double the profit, while the fine for T2’s [Bunker Holding] negligent infringement is measured so that it roughly corresponds to the profit of the last 8 trades.”
“T1 [Dan Bunkering] has the dividends confiscated from the traders, which have been calculated by the court to be approximately DKK 15.65 million.”
All quotes below are translated from Danish to English by the author. The original judgement in Danish can be found here Dom i straffesag om levering af jetbrændstof i strid med EU’s sanktioner