OFAC Doubles Base Penalty in FTI Consulting Sanctions Settlement

Key Takeaways

• Indirect Structures Offer No Safe Harbor: OFAC concluded that invoicing a law firm instead of a sanctioned bank did not change the underlying transaction because VTB remained responsible for payment and benefited from FTI's services.
• Commercial Reality Overrides Contractual Form: The enforcement action underscores that regulators will evaluate the substance of a transaction, not merely its legal structure, when determining sanctions compliance.
• Payment Delays Can Become Sanctions Violations: By continuing to provide services while invoices remained unpaid beyond the permitted 14-day tenor, FTI indirectly extended prohibited debt under Directive 1, according to OFAC.

Deep Dive

The Office of Foreign Assets Control announced a settlement with FTI Consulting after determining that the Washington-based advisory firm had indirectly dealt in prohibited debt issued by VTB Bank, the Russian state-owned lender that has been subject to U.S. sectoral sanctions since 2014. That conclusion will cost FTI $1.05 million. Between April 2019 and May 2021, OFAC said, FTI repeatedly extended credit beyond the permitted 14-day maturity by continuing to perform consulting work while invoices ultimately owed by VTB remained unpaid for months. The mechanics of the arrangement had changed. The economic reality had not.

The case began with what might have seemed an ordinary engagement. A global law firm approached FTI in late 2018 to provide expert economic consulting for VTB in civil litigation in Singapore. Inside FTI, the sanctions implications were recognized almost immediately. Compliance officials understood that working for VTB carried restrictions because the bank was subject to Directive 1 under Executive Order 13662, which bars U.S. persons from dealing in new debt of more than 14 days' maturity issued by the bank. They debated how the work could proceed without crossing that line.

The answer they settled on was elegant enough to satisfy a contract. FTI's client would be the law firm, not VTB. Invoices would go to the law firm, which would forward them to the bank for payment before remitting the money to FTI. Yet the agreement contained a provision that would later become decisive. The law firm accepted no responsibility for paying FTI unless VTB paid first. If the Russian bank did not send the money, the law firm assumed none of the credit risk. It was, in other words, a conduit rather than a customer.

That distinction sharpened as the invoices accumulated. FTI billed roughly $54,000 for its first engagement, then began discussing additional work before receiving payment. A second engagement followed, structured in much the same way, this time with a retainer that VTB again failed to fund. The work nevertheless continued. Consultants drafted expert analyses, attended calls about overdue invoices and kept sending new bills even as earlier ones sat unpaid for weeks, then months. By the time FTI issued its fourth invoice in July 2019, the first three had already been outstanding for 99, 92 and 35 days. One partial payment eventually arrived. Others followed much later. Most did not.

What emerges from OFAC's account is not the picture of a company unaware of sanctions obligations but one that understood the rules well enough to search for a compliant structure, then failed to recognize when the structure had ceased to matter. The invoices still depended on VTB. The services still benefited VTB. And as the payment delays lengthened, the arrangement ceased to resemble an administrative workaround and began to resemble exactly what the sanctions prohibited: extending credit to a sanctioned bank beyond the permitted term.

OFAC classified the matter as non-egregious and noted that FTI cooperated extensively once the conduct came under scrutiny, producing contemporaneous documents, waiving privilege and later strengthening its sanctions compliance program through additional training, updated procedures, expanded compliance resources and new controls implemented after Russia's full-scale invasion of Ukraine. Those measures counted in the firm's favor. So did the relatively small scale of the transactions compared with FTI's overall business and the absence of prior OFAC enforcement during the preceding five years.

They did not, however, prevent OFAC from sending a broader message. Although the applicable base civil penalty was $525,000, the agency doubled the settlement to $1.05 million, explaining that the increase reflected the need to promote compliance among similarly situated firms. The decision speaks less to the dollar value of the invoices than to the principle they tested. Sanctions law has always been suspicious of form detached from substance. OFAC's position is that companies cannot achieve indirectly what they are forbidden to do directly, and that regulators will judge transactions by who ultimately bears the risk, who receives the benefit and what actually happens once the paperwork is set aside.

That may prove to be the lasting significance of the case. Many sanctions programs leave room for legitimate business with restricted parties, particularly where the measures fall short of a full asset freeze. Those spaces between prohibition and permission invite careful structuring. They also invite wishful thinking. OFAC's enforcement action suggests that the line separating the two is not drawn by contractual language but by commercial reality, and reality has a habit of surviving every attempt to draft around it.

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