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Insufficient Compliance Program Leads to Sanctions Violations, Penalty

Friday, February 22, 2019
Sandler, Travis & Rosenberg Trade Report

A recent penalty case from the Office of Foreign Assets Control demonstrates the importance for companies operating in high-risk industries to implement risk-based compliance measures, especially when engaging in transactions involving exposure to jurisdictions or persons implicated by U.S. sanctions. In particular, OFAC states, companies engaging in international transactions should consider and respond to sanctions-related warning signs, such as information that goods are originating from, being loaded or unloaded at ports located in, or transshipping through countries or regions subject to comprehensive U.S. economic and trade sanctions.

According to OFAC, in the case at issue a U.S. company unable to secure enough cement clinker from a supplier in India to fulfill a contract with a Tanzanian purchaser arranged to buy clinker from an alternative supplier in the United Arab Emirates despite knowing that the goods were produced by an Iranian manufacturer and shipped from a port in Iran. The company purchased a total of 263,563 metric tons of Iranian-origin clinker with an aggregate value of $14.5 million, in violation of the Iranian Transactions and Sanctions Regulations.

OFAC states that the statutory maximum civil monetary penalty for the apparent violations was $29.0 million and the base penalty was $625,000. The company ultimately agreed to pay $506,250 to settle the charges.

OFAC considered the following to be aggravating factors: (1) although the company did exercise limited due diligence, it acted with reckless disregard for sanctions requirements by failing to substantively address the U.S. sanctions prohibitions in place with respect to Iran despite contemporaneous risk indicators, (2) senior management was aware that the company was purchasing and reselling goods of Iranian origin, (3) the transactions at issue conferred significant economic benefits to Iran, (4) the U.S. company is a commercially sophisticated company operating globally with experience and expertise in international transactions, and (5) the company did not have an effective OFAC compliance program commensurate with its level of risk in place at the time of the transactions.

On the other hand, OFAC considered the following to be mitigating factors: (1) no OFAC penalty notice or finding of violation in the previous five years, (2) the company was a small business, (3) the company undertook significant remedial measures by conducting a thorough internal investigation and enhancing its sanctions compliance policy and procedures, including by developing and implementing a U.S. export controls and economic sanctions compliance manual and appointing a sanctions compliance officer, and (4) the company cooperated with OFAC’s investigation.

For more information on economic sanctions issues, please contact Kristine Pirnia at (202) 730-4964.

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