What Happened

Pegasus Worldwide Logistics (“Pegasus”) is a small California freight forwarder with about a dozen employees. It helps customers move goods across borders, with services that include ocean freight, container consolidation, customs clearance, warehousing, trucking, rail transport and drayage. On October 9, 2026, OFAC announced that Pegasus agreed to pay $175,015 to settle its potential civil liability for apparent violations of OFAC’s counter narcotics sanctions and of OFAC’s reporting requirements.

In short, Pegasus arranged the shipment of a machine from a sanctioned supplier in China without recognizing who the supplier was, because its sanctions review and overall compliance program had serious gaps. Pegasus also did not fully answer OFAC’s administrative subpoena at first.

Starting in early 2023, Pegasus told its employees to do basic sanctions screening. They were supposed to compare the name, address, email, phone number and other details of the parties to each transaction against OFAC’s Specially Designated Nationals and Blocked Persons (SDN) List.

On May 30, 2023, OFAC designated Youli Technology Development Co., Ltd. (“Youli”), a China-based supplier of pill press and packaging equipment, under Executive Order (E.O.) 14059, which targets the global illicit drug trade. OFAC said Youli shipped machinery to people in the United States who made counterfeit pills using methods meant to evade law enforcement. The designation blocked all of Youli’s property and interests in property, and generally prohibited U.S. persons from any transaction involving them. OFAC added Youli to the SDN List along with several identifiers, including a phone number and email address. Youli later changed its name to Huizhou Youli Fushi Co., Ltd., but its other identifiers stayed the same.

In August 2023, a U.S. nutritional supplement company (the “U.S. Purchaser”) hired Pegasus to coordinate the purchase and shipment of a customized sugar packet-filling machine from Youli, valued at $5,950. The U.S. Purchaser had bought a breath mint tableting machine from Youli before, and Pegasus had helped with that import too. OFAC’s investigation found the machine was meant for legitimate commercial use, and the Drug Enforcement Administration indicated it has little value for packaging narcotics.

Youli told the U.S. Purchaser on September 7, 2023 that the machine was ready to ship. On September 12, 2023, Pegasus instructed Youli to arrange the shipment with a Chinese shipping agent. Pegasus sent that instruction to an email address that the SDN List identifies as Youli’s. The shipping agent prepared the shipping documents and sent them to Pegasus. The documents named the shipper using Youli’s new name, but they still showed the phone number that OFAC had listed for Youli. Pegasus used this information to file an Importer Security Filing with U.S. Customs and Border Protection (CBP) through a U.S. customs broker. On or after September 28, 2023, Pegasus paid the Chinese shipping agent $146.33 to move the machine to the United States.

Pegasus’s written sanctions procedure did not say when to check the SDN List. Instead of doing any due diligence at the start of the deal, Pegasus waited until just before the machine left China. By then it had already engaged in prohibited conduct. When it finally screened, it checked only the new name, “Huizhou Youli Fushi Co., Ltd,” against the SDN List and got no match. A Pegasus employee did not screen the phone number or email address, even though company policy required screening the parties’ name, address, email, phone and other information. Checking those identifiers, even with a basic internet search, would have turned up a match for Youli.

The machine arrived at the port of Long Beach, California on October 11, 2023. On November 3, 2023, CBP identified it as coming from a blocked person, detained it, and gave Pegasus a Detention Notice naming OFAC as the responsible agency. Neither the notice nor the mention of OFAC led Pegasus to investigate further. About a week later, the customs broker billed the U.S. Purchaser, through Pegasus, $1,463.55 in import duties and fees, and Pegasus promptly paid it. Pegasus then received $2,358.62 from the U.S. Purchaser to cover those fees and its own freight forwarding fees. On December 6, 2023, CBP seized the machine as blocked property.

Shortly before the seizure, OFAC sent Pegasus an administrative subpoena asking about the machine. The subpoena listed three variations of Youli’s name and several other identifiers, including the email address and phone number from the SDN List. On February 1, 2024, Pegasus submitted a certified response saying it had no responsive information. OFAC then showed Pegasus the arrival notice for the shipment. It contained nothing new about Youli, but it showed Pegasus’s role in the shipment. Only then did Pegasus find records that answered the subpoena. Pegasus explained that it had not given its attorney all the necessary information when the response was being prepared. On August 8, 2024, six months after the first response, Pegasus sent OFAC a revised response describing its involvement in the shipment.

As a result, Pegasus appears to have violated section 599.201 of the Illicit Drug Trade Sanctions Regulations (31 C.F.R. part 599) by dealing with a blocked person, or with property in which a blocked person had an interest. Pegasus also appears to have violated section 501.602(a) of the Reporting, Procedures and Penalties Regulations (31 C.F.R. part 501) six times between February 1, 2024 and August 8, 2024, by failing to provide complete information in response to OFAC’s subpoena over those six months.

OFAC added that the case shows the sanctions risks that logistics and freight forwarding companies can face, including when they deal in blocked property, and that it underscores the importance of effective, risk-based controls.

The Penalty

OFAC treated Pegasus’s apparent violations as non-egregious and not voluntarily self-disclosed. The $175,015 settlement also reflects the extensive remedial measures Pegasus took and its commitment to enhanced reporting to OFAC.

Under OFAC’s Economic Sanctions Enforcement Guidelines (31 C.F.R. part 501, app. A), a non-egregious case that was not voluntarily self-disclosed starts from a base penalty equal to the schedule amount. Here that base penalty was $205,900. All of the apparent violations were treated the same way, so this is not a mixed case with both egregious and non-egregious violations. The release does not break the base penalty down by violation type.

OFAC then weighed the General Factors in the Enforcement Guidelines, which brought the settlement down to $175,015, roughly 85 percent of the base penalty.

Aggravating factors

• Reckless disregard for sanctions requirements. Pegasus did not properly screen the information it had about Youli, and it did not investigate after learning CBP had detained the machine under OFAC authorities. These failures led to multiple dealings in blocked property.
  • General Factor A (Willful or Reckless Violation of Law) – skipping the phone number and email address in screening, and ignoring a detention notice that named OFAC, showed a failure to take even minimal care to avoid a violation.
• Awareness of the conduct. Pegasus knew throughout that it was arranging an export from Youli, and it had reason to know Youli was the party OFAC had sanctioned.
  • General Factor B (Awareness of Conduct at Issue) – Pegasus was fully aware of what it was doing, and the information needed to identify the supplier as an SDN was in its possession.
• Helping a sanctioned supplier and slowing OFAC’s investigation. Pegasus’s dealings helped an SDN keep exporting to the United States and profiting from it, which undermined the goals of OFAC’s counter narcotics sanctions. Pegasus’s late and incomplete response to the subpoena also delayed OFAC’s investigation.
  • General Factor C (Harm to Sanctions Program Objectives) – the transaction supported a designated drug trade enabler’s continued business.
  • General Factor G (Cooperation with OFAC) – the incomplete first response, followed by a revised response six months later, delayed the investigation.
• Sector risk. Although Pegasus is not a large company, its role as an international logistics company and freight forwarder called for extra attention to U.S. sanctions given the risks in that industry.
  • General Factor D (Individual Characteristics) – OFAC looked at the kind of business Pegasus is, and its position in international trade meant it should have had a higher level of sanctions awareness than its size alone suggests.

Mitigating factors

• Clean history, small size and low-value transactions. Pegasus had no OFAC enforcement action in the five years before the earliest transaction at issue. It is a small company, and the transactions were relatively low in value.
  • General Factor D (Individual Characteristics) – sanctions history, company size and transaction value all count in Pegasus’s favor.
• Remedial measures. Pegasus agreed to extensive steps to strengthen its sanctions compliance controls, including hiring an outside consultant who knows U.S. sanctions requirements. It will also send OFAC regular, detailed reports for an extended period on what it is doing to comply.
  • General Factor F (Remedial Response) – Pegasus committed to new and stronger controls and to ongoing reporting to OFAC.

What are the Takeaways?

• Freight forwarders and similar intermediaries face many kinds of sanctions risk. They sit at the center of trade deals and work with buyers, sellers, shippers, carriers and others, so they often act as the first line of defense against dealings with sanctioned parties.
• OFAC strongly encourages these companies to use robust, risk-based sanctions compliance controls. Employees should understand OFAC requirements thoroughly and get regular training to keep up with new issues.
• Ordinary business activity involving blocked property can violate U.S. sanctions. Once someone is designated, any property in which that person has an interest, direct or indirect, is effectively off limits. Any dealing, however small, is generally prohibited without OFAC authorization.
• Screening names against the SDN List is important, but it is only a baseline. Companies should take a comprehensive approach to compliance and should account for sanctioned parties trying to hide their involvement, which is more important as sanctioned actors use increasingly sophisticated schemes and technologies. Youli changing its name while keeping the same phone number and email address is a simple example.
• Respond to OFAC information requests on time and accurately. Anyone who receives one should do a thorough inquiry and make sure every responsive record is provided.
• Cooperation matters when OFAC decides how to resolve a case and how large a penalty to seek. Prompt, searching inquiries and complete responses show that a company takes its compliance obligations seriously. Falling short on cooperation risks losing mitigation credit, and it can also lead to separate penalties under the Reporting, Procedures and Penalties Regulations.

Other resources

On May 2, 2019, OFAC published A Framework for OFAC Compliance Commitments. It gives organizations subject to U.S. jurisdiction, and foreign entities that do business in or with the United States or U.S. persons or use U.S.-origin goods or services, OFAC’s view of the essential parts of a sanctions compliance program. It also explains how OFAC may factor those parts into its evaluation of apparent violations and the resolution of investigations that end in settlements. An appendix to the Framework briefly analyzes some of the root causes of apparent violations that OFAC has identified in its investigations.

Information on the civil penalties process is in the OFAC regulations for each sanctions program, the Reporting, Procedures and Penalties Regulations (31 C.F.R. part 501), and the Economic Sanctions Enforcement Guidelines (31 C.F.R. part 501, app. A). These references, along with recent civil penalties and enforcement information, are available on OFAC’s civil penalties and enforcement information page.

The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) runs a whistleblower incentive program for violations of OFAC-administered sanctions, as well as other violations of the International Emergency Economic Powers Act and the Bank Secrecy Act. People in the United States or abroad who provide information about sanctions violations may be eligible for an award if their information leads to a successful enforcement action with monetary penalties above $1,000,000. The program covers information about potential violations in any commercial sector.