OFAC’s Pegasus Settlement: Lessons for Logistics Providers on Screening and Subpoena Responses

On October 9, 2026, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced that Pegasus Worldwide Logistics (Pegasus), a California-based logistics company and freight forwarder, agreed to pay $175,015 to settle its potential civil liability for apparent violations of OFAC counter narcotics sanctions and OFAC reporting obligations. The underlying transaction was the shipment of a customized sugar packet-filling machine valued at $5,950. OFAC also found that Pegasus initially failed to respond fully to OFAC’s administrative subpoena.

Although small in dollar terms, the case highlights the sanctions risks facing logistics and freight forwarding companies, including from dealings in blocked property. The release also underscores that name-only screening may be insufficient when a designated party changes its name, and that an incomplete subpoena response can result in standalone penalties.

Background: The Designation, the Name Change, and the Shipment

On May 30, 2023, OFAC designated Youli Technology Development Co., Ltd. (Youli), a China-based supplier of pill press and packaging equipment, pursuant to Executive Order 14059, which authorized the imposition of sanctions on foreign persons involved in the global illicit drug trade. OFAC’s Specially Designated Nationals and Blocked Persons List (“SDN List” and those listed thereon, “SDNs”) entry included Youli’s 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 that had previously imported a Youli tableting machine through Pegasus engaged Pegasus to coordinate the purchase and shipment of the machine from Youli. In September 2023, Pegasus communicated with Youli through its SDN-listed email address, then used shipping documents bearing Youli’s new name but its SDN-listed telephone number to file an Importer Security Filing with U.S. Customs and Border Protection (CBP). Pegasus also paid a Chinese shipping agent $146.33 for transport.

Key Compliance Failures

OFAC’s release identifies several failures that companies should remain alert to:.

• Screening came too late. Pegasus’s sanctions compliance procedure made no mention of when employees should check the SDN List. Pegasus performed no due diligence at the outset and did not screen until just before the machine was to depart China. By that point, OFAC found, Pegasus had already engaged in prohibited conduct, including corresponding with Youli and instructing it to arrange the shipment.
• Screening was name-only, contrary to the company’s own policy. Pegasus screened only Youli’s new name, which produced no SDN List match. Although company policy required screening of “parties’ name, address, email, phone, and other information,” Pegasus employees did not screen Youli’s unchanged email address or phone number. OFAC noted that screening those identifiers, even through a basic internet search, would have produced a positive match.
• Red flags were ignored. On November 3, 2023, CBP detained the machine and issued Pegasus a Detention Notice identifying OFAC as the responsible agency, but Pegasus did not investigate further. About a week later, Pegasus paid a $1,463.55 invoice for import duties and fees and then collected $2,358.62 from the U.S. purchaser, covering those fees and its own forwarding fees. CBP seized the machine as blocked property on December 6, 2023, and each payment was a further dealing in blocked property.
• The subpoena response was inaccurate. Although OFAC’s subpoena listed three name variations for Youli and its email address and phone number, Pegasus certified on February 1, 2024, that it had no responsive information. Pegasus located responsive records only after OFAC showed it the shipment’s arrival notice, explaining that it had not given its attorney all the necessary information. It submitted a revised response six months later, on August 8, 2024.

The Violations and Penalty Calculation

OFAC determined that Pegasus had engaged in apparent violations of § 599.201 of the Illicit Drug Trade Sanctions Regulations, 31 C.F.R. part 599, by dealing with a blocked person or in property in which a blocked person had an interest. OFAC also found that Pegasus violated § 501.602(a) of the Reporting, Procedures and Penalties Regulations (RPPR) six times between February 1 and August 8, 2024, by failing to provide complete information in response to the subpoena. Because Pegasus settled, OFAC did not issue a penalty notice or make a final finding of violation.

OFAC concluded that the violations were not voluntarily self-disclosed and were non-egregious, yielding a base penalty of $205,900. The $175,015 settlement reflects OFAC’s consideration of the General Factors under its Economic Sanctions Enforcement Guidelines, including four aggravating factors:

• Pegasus showed reckless disregard for U.S. sanctions requirements by failing to screen information in its possession about Youli and by failing to investigate after learning of the OFAC-related detention.
• Pegasus had reason to know it was arranging the export of equipment from Youli, the sanctioned party, given the SDN-listed email address and telephone number.
• Pegasus’s dealings supported an SDN in continuing to export to the United States and profit from that conduct, and its deficient subpoena response delayed OFAC’s investigation.
• Pegasus’s role as an international logistics company and freight forwarder warranted heightened attention to sanctions given the risks in that sector. This factor is notable because Pegasus has only about a dozen employees. OFAC separately credited Pegasus’s small size as mitigating, indicating that size may reduce a penalty without lowering the compliance expectations that attach to a company’s role.

The remaining mitigating factors considered were that Pegasus had no OFAC enforcement action in the preceding five years, the transactions were relatively low in value, and Pegasus agreed to extensive remedial measures, including hiring an outside sanctions consultant and making regular, detailed reports to OFAC for an extended period.

Key Takeaways

Intermediaries are expected to act as gatekeepers. OFAC described logistics providers as “the gatekeepers of international trade” because they sit at the center of transactions involving buyers, sellers, shippers, and carriers. Although a U.S. purchaser bought the machine, OFAC’s action targeted Pegasus as the freight forwarder. Logistics providers should anticipate that OFAC will evaluate their screening independently of their customers’ diligence.

Screen every identifier, at the outset. OFAC called name screening a “baseline tool” and urged controls that account for an SDN’s efforts to hide their involvement. Pegasus’s policy covered email addresses and phone numbers, but it did not specify timing and was not followed. Companies should assess whether their procedures require screening of all available identifiers at the start of a transaction, and whether employees in fact apply them.

Small dealings can still create significant liability. OFAC stated that, upon designation, property in which an SDN has any interest becomes “effectively radioactive,” and any dealing is generally prohibited without authorization. Pegasus’s dealings involved a few thousand dollars in fees relating to a $5,950 machine that OFAC’s investigation indicated was intended for legitimate commercial use, yet resulted in a $175,015 settlement.

Treat government notices as red flags. Pegasus ignored a CBP Detention Notice that expressly identified OFAC, and then paid and collected fees, conduct OFAC cited in its reckless disregard finding. Companies should consider requiring employees to escalate any government notice referencing sanctions and to suspend related payments pending review.

Respond to OFAC requests completely. Pegasus’s inaccurate certification resulted in six RPPR violations and an aggravating factor. OFAC warned that incomplete cooperation risks both the loss of mitigation credit and standalone RPPR penalties. Companies should conduct a thorough inquiry and ensure that counsel has all relevant records before certifying a response.

Whistleblower incentives add another source of exposure. OFAC highlighted the Financial Crimes Enforcement Network (FinCEN) whistleblower program, under which individuals in the United States or abroad may receive awards for information about sanctions violations that leads to monetary penalties exceeding $1,000,000. Although the Pegasus penalty fell below that threshold, the program covers any commercial sector, and logistics employees, customs brokers, and counterparties may observe lapses like those described in the release. If employees view the government as the more rewarding or reliable channel, a company may learn of a violation only when OFAC or FinCEN does, losing the opportunity to receive credit for voluntarily self-disclosing. Companies should consider whether their internal reporting channels are trusted, protect against retaliation, and lead to prompt escalation.

OFAC’s enforcement release is available here.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.