Claude’s summary:

What Happened

FTI Consulting, Inc. (“FTI”), an international consulting and advisory firm headquartered in Washington, D.C., has agreed to pay $1,050,000 to settle potential civil liability for apparent violations of OFAC sanctions targeting Russia’s financial sector.

Between April 2019 and November 2019, FTI issued six invoices—totaling approximately $353,862—for economic consulting services it was providing in connection with a civil lawsuit in Singapore on behalf of VTB Bank OAO (“VTB”), a Russian state-owned bank. At all relevant times, VTB was listed on OFAC’s Sectoral Sanctions Identification (SSI) List and was subject to Directive 1 under Executive Order 13662 (“Directive 1”), incorporated into the Ukraine-/Russia-Related Sanctions Regulations (URSR), 31 C.F.R. part 589. Directive 1 prohibits U.S. persons from dealing in new debt of more than 14 days’ maturity with covered entities and bars any transaction structured to evade or avoid those prohibitions.

The apparent violations arose from how the engagement was structured. FTI had been engaged by a global law firm to provide expert economic consulting services to VTB. FTI’s compliance officials recognized early on that directly invoicing VTB would create sanctions risk. To address that risk, FTI and the law firm agreed to an indirect payment arrangement: FTI would invoice the law firm, but the law firm would pay FTI only after first receiving payment from VTB. FTI had no recourse against the law firm unless VTB paid first—and no direct recourse against VTB if invoices went unpaid.

OFAC found that this structure did not insulate FTI from liability. Because VTB was ultimately responsible for funding FTI’s invoices, FTI was—in economic substance—extending new debt to VTB on each occasion an invoice went unpaid or was paid after the permissible 14-day tenor. Payment delays were severe: individual invoices remained outstanding for 35, 90, 92, 99, and as many as 198 days.

Multiple warning signs accumulated throughout the engagement that FTI did not adequately act on. FTI continued to perform work and issue new invoices even as prior invoices remained unpaid for months. In July 2019, FTI joined a call directly with VTB to discuss overdue payments. When FTI later demanded that the law firm pay the outstanding invoices from its own funds, the law firm declined, explicitly stating it had not assumed VTB’s credit risk—a signal that VTB’s non-payment directly affected FTI.

FTI issued its final invoice on November 26, 2019. By March 2020, across all six invoices totaling approximately $353,862, FTI had received only one partial payment of approximately $57,000. A second partial payment of approximately $19,400 followed in June 2020, 198 days after that invoice was issued. In May 2021, the law firm informed FTI it no longer represented VTB, at which point FTI ceased collection efforts. FTI subsequently conducted an internal review and submitted a notification of potential violation to OFAC.

OFAC found that FTI violated §§ 589.202 and 589.213 of the URSR on six occasions by indirectly dealing in new debt of longer than 14 days’ maturity with an SSI-listed entity.

The Penalty

OFAC classified all six violations as non-egregious and determined that FTI did not voluntarily self-disclose them—notwithstanding FTI’s eventual notification to OFAC following its internal investigation. Under OFAC’s Economic Sanctions Enforcement Guidelines (31 C.F.R. part 501, app. A), the applicable base civil monetary penalty for a non-egregious, non-voluntary-disclosure case equals the schedule amount: $525,000.

The final settlement of $1,050,000—double the base penalty—reflects upward adjustment after weighing the aggravating and mitigating factors below, with particular emphasis on promoting future compliance among similarly situated firms.

Aggravating Factors

• Reckless disregard for multiple warning signs — FTI’s senior managers were aware of the Directive 1 restrictions on VTB from the outset and deliberately structured the engagement to reduce sanctions exposure. But warning signs accumulated and went unaddressed: invoices went unpaid for months; FTI participated in a direct call with VTB to discuss overdue payments; and the law firm explicitly disclaimed responsibility for VTB’s non-payment—a clear signal that FTI bore VTB’s credit risk. Despite all of this, FTI continued to work and issue new invoices throughout.
  • General Factors: Willful or Reckless Violation of Law / Awareness of Conduct at Issue — FTI had actual knowledge of the applicable prohibitions from the start and designed a payment structure specifically to address them. OFAC treats continued conduct in the face of accumulating red flags as recklessness, particularly where the firm was already sensitized to the risks involved.
• Harm to the objectives of the sanctions program — U.S. sanctions on VTB were designed in part to limit VTB’s access to credit from U.S. sources. FTI’s indirect arrangement undercut this objective by extending prohibited credit to VTB over extended periods. The intermediary structure also obscured VTB’s role in the transaction in a way that may have prevented other parties in the payment chain from screening the activity.
  • General Factor: Harm to Sanctions Program Objectives — The conduct frustrated the practical aims of Russia’s sectoral sanctions and reduced the ability of other transaction participants to identify and screen out the sanctioned party’s involvement.
• Size and sophistication of the firm — FTI is a large, internationally active consulting firm with extensive experience serving clients across industries and jurisdictions worldwide. OFAC applied heightened scrutiny here to promote greater awareness of indirect dealings prohibitions among other firms with the resources and expertise to implement robust sanctions compliance.
  • General Factor: Individual Characteristics — Sophisticated, globally operating entities are held to a higher standard of compliance awareness and are expected to dedicate appropriate resources to identifying and managing sanctions risk commensurate with their exposure.

Mitigating Factors

• Meaningful cooperation with OFAC’s investigation — FTI agreed to toll the statute of limitations and assisted OFAC’s investigation by producing comprehensive contemporaneous documentation, including by waiving attorney-client privilege.
  • General Factor: Cooperation with OFAC — FTI’s substantive cooperation reduced the burden on OFAC’s investigative process and contributed to an efficient resolution of the matter.
• Limited scale of the transactions relative to FTI’s overall business — The six invoices, totaling approximately $353,862, represented a very small fraction of FTI’s overall payment activity.
  • General Factor: Harm to Sanctions Program Objectives — The limited economic magnitude of the violations reduced the overall severity of harm caused to the sanctions program’s objectives.
• Meaningful remediation of its compliance program — Following the violations, FTI took concrete steps to strengthen its sanctions compliance infrastructure: (1) implemented training specifically addressing sectoral sanctions, with targeted outreach within its legal department regarding law firm engagements; (2) updated its sanctions compliance policies and restricted party screening procedures; (3) supplemented its sanctions compliance resources; and (4) strengthened risk assessments and controls in response to Russia’s full-scale invasion of Ukraine in 2022.
  • General Factors: Adequacy of Compliance Program / Remedial Response — FTI’s post-violation improvements demonstrated a genuine commitment to addressing the root causes of the violations and reducing the likelihood of recurrence.
• No prior OFAC enforcement history — FTI had not received a Finding of Violation or a Penalty Notice from OFAC in the preceding five years.
  • General Factor: Prior OFAC Actions Against the Subject — A clean OFAC enforcement record is a recognized mitigating consideration under the Enforcement Guidelines.

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OFAC’s broader message: This settlement underscores a foundational principle running throughout OFAC’s regulatory framework—it is prohibited to do indirectly what cannot be done directly. Firms must ensure that their sanctions risk analysis reflects the full economic and practical reality of a transaction, not just its formal structure. OFAC will look past contractual arrangements to assess what is actually happening on the ground, and arrangements that merely create the appearance of compliance—without addressing the underlying prohibited conduct—do not provide a safe harbor.

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What Are the Takeaways?

You can’t route a prohibited transaction through a third party to make it permissible. The fact that FTI billed the law firm rather than VTB directly did not change the underlying economic reality: VTB was the party ultimately responsible for funding FTI’s invoices, making FTI the effective creditor to a sanctioned entity. OFAC has long maintained that U.S. persons cannot use intermediaries to do on their behalf what they are forbidden from doing themselves. If a sanctioned party is the ultimate source of funds, the transaction is prohibited regardless of how many parties stand in between.

Sectoral (partial) sanctions can be surprisingly expansive in scope. VTB was not fully blocked—it was subject to the more targeted restrictions of Directive 1. But those restrictions were still broad enough to reach FTI’s indirect invoicing arrangements. Companies that deal with parties subject to less-than-full-blocking sanctions measures should not assume that the narrower designation means lower risk. Each transaction must be evaluated carefully on its own merits to confirm that the underlying activity—and any related transactions—are fully permissible.

Assess the economic reality of a transaction, not just its paperwork. When evaluating whether a proposed arrangement is compliant, firms should look at what is actually happening economically—not just what the contracts say. Structures that appear compliant on their face but fail to address the underlying prohibited economic relationship are not a defense. In the debt context specifically, a sanctioned counterparty’s repeated failure to make contracted payments is a red flag that demands a thorough reassessment of the arrangement’s compliance status, not continued performance.

Other Resources

OFAC Compliance and Enforcement Resources

On May 2, 2019, OFAC published its Framework for OFAC Compliance Commitments, which outlines OFAC’s expectations for what an effective sanctions compliance program looks like and how OFAC factors compliance program quality into its evaluation of apparent violations and settlement determinations. An appendix to the Framework identifies common root causes of sanctions violations drawn from OFAC’s investigative experience.

For additional information on the civil penalties process, see:

• The OFAC regulations governing each applicable sanctions program
• The Reporting, Procedures, and Penalties Regulations, 31 C.F.R. part 501
• The Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A

Recent civil penalties and enforcement information are available on OFAC’s website at ofac.treasury.gov/civil-penalties-and-enforcement-information.

FinCEN Whistleblower Program

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) administers a whistleblower incentive program covering potential violations of OFAC-administered sanctions, the International Emergency Economic Powers Act (IEEPA), and the Bank Secrecy Act (BSA). Individuals located anywhere in the world who provide information about sanctions violations may be eligible for a financial award if their information leads to a successful enforcement action resulting in monetary penalties exceeding $1,000,000 and the statutory requirements of 31 U.S.C. § 5323 are satisfied. The program is open to whistleblowers across all industries and enterprise types, and FinCEN is currently accepting tips.

For more information on OFAC regulations generally, visit ofac.treasury.gov.

and the full Enforcement Information: