US freight forwarder pays OFAC $175,015 after missing renamed Chinese supplier

Pegasus Worldwide Logistics, a California-based freight forwarder, has agreed to pay $175,015 to settle its potential civil liability for apparent violations of US counter-narcotics sanctions and of reporting rules, the Office of Foreign Assets Control (OFAC) said in an enforcement release on 9 October. The company arranged the import of a machine from a designated Chinese supplier that had changed its name but kept the contact details shown on OFAC's sanctions list.

The settlement covers four apparent violations of OFAC's counter-narcotics regulations and six of its Reporting, Procedures and Penalties Regulations (RPPR), according to OFAC's announcement. Between September 2023 and February 2024, Pegasus dealt in blocked property by facilitating the import of a machine supplied by a designated company, and it then failed for six months to respond fully to an OFAC subpoena, the announcement said. OFAC judged the conduct non-egregious and not voluntarily self-disclosed. The base penalty was $205,900, the release shows, so the settlement is 85 per cent of that figure.

A new name, the same phone number

OFAC designated Youli Technology Development Co., Ltd., a pill press supplier in Huizhou, China, on 30 May 2023 as part of a Treasury action against 17 individuals and entities involved in equipment used to make illicit drugs. After its designation under Executive Order 14059, Youli renamed itself Huizhou Youli Fushi Co., Ltd., but its telephone number and email address, both listed on the Specially Designated Nationals (SDN) List, stayed the same, according to the release.

In August 2023 a US nutritional supplement company engaged Pegasus to coordinate the purchase and shipment from Youli of a customised sugar-packet filling machine valued at $5,950. OFAC said its investigation found the machine was intended for legitimate commercial use. On 12 September 2023 Pegasus instructed Youli, through an email address that the SDN List associated with the company, to arrange shipment. The shipping documents named the new company but carried Youli's listed telephone number, the release says.

Pegasus's compliance procedure did not say when to check the SDN List. The company screened only the new name, just before the machine left China, and found no match. "Screening the other identifiers, including through a basic internet search, would have yielded a positive match for Youli," the release states. The machine reached Long Beach, California, on 11 October 2023. On 3 November US Customs and Border Protection told Pegasus it had detained the machine and issued a notice naming OFAC as the responsible agency. Pegasus did not investigate, paid $1,463.55 in duties and fees and later received $2,358.62 from the buyer to cover those costs and its own charges. Customs seized the machine on 6 December 2023.

Subpoena failures drew their own penalty

OFAC's subpoena listed three variations of Youli's name together with its email address and telephone number. On 1 February 2024 Pegasus certified that it held no responsive information. It located records only after OFAC showed it an arrival notice for the shipment, and it told OFAC it had not passed all the necessary information to its lawyer. Its revised response came on 8 August 2024, six months after the first, the release shows.

OFAC listed four aggravating factors, including reckless disregard for sanctions requirements and its view that Pegasus's role as a freight forwarder "warranted heightened attention to U.S. sanctions given risks in the sector." The mitigating factors were the absence of OFAC enforcement action against the company in the previous five years, its small size of about a dozen employees, the low transaction values and its commitment to remedial measures, including hiring an outside sanctions consultant and reporting regularly to OFAC for an extended period, the release says.

What OFAC expects of intermediaries

In its compliance guidance, OFAC described logistics providers as "gatekeepers of international trade" and said property in which a designated party has any interest becomes "effectively radioactive". It added: "Any dealing, no matter how small, generally becomes prohibited without authorization from OFAC." Screening against names on the SDN List "is a baseline tool", and controls should allow for efforts by sanctioned parties to obscure their involvement, the release says. It also warned that incomplete cooperation with information requests "can also risk standalone penalties under the RPPR."

The release also points to OFAC's 2019 framework for compliance commitments, which is addressed to organisations subject to US jurisdiction and to foreign entities that do business with the United States or US persons, or that use goods or services exported from the United States. Pegasus was the eighth enforcement action OFAC has published in 2026; a ninth, on 13 October, took the year's total to $295,983,600, OFAC's enforcement table shows. The largest, a $275 million settlement in May with India-based Adani Enterprises, likewise turned on a sanctioned source that was not apparent on paper: OFAC said red flags should have alerted the company that liquefied petroleum gas bought from a Dubai-based trader purporting to supply Omani and Iraqi gas came from Iran.