Nearly $1 Million Penalty for Foreign Subsidiary Sales to Iran
The Office of Foreign Assets Control reports that a U.S. cookware coating manufacturer has agreed to pay $824,314 to settle its potential civil liability for its foreign subsidiaries’ continued sales of coatings to Iran despite changes to OFAC’s Iran sanctions program that prohibited such transactions. Additionally, the company’s U.S.-person employees oversaw and provided instructions relating to some of these sales.
OFAC states that this case demonstrates the importance of companies dedicating sufficient resources to U.S. sanctions compliance, staying abreast of changes to sanctions regulations, and understanding the full scope of sanctions prohibitions, especially when operating in higher-risk jurisdictions. For more information on these issues, please contact ST&R’s export controls and sanctions practice leader Kristine Pirnia.
According to OFAC, the company said that when it realized that its subsidiary’s sales to Iran may be problematic its regulatory affairs manager (who did not specialize in sanctions compliance) incorrectly advised that foreign subsidiaries could legally continue selling to Iran so long as there were no direct connections between a subsidiary and Iran. After receiving this advice the company’s managing director for Europe (a U.S. person who oversaw the company’s subsidiaries), along with other managers, developed a plan to continue selling to Iran by instructing that sales to Iran go indirectly through third-party distributors and that documents related to those sales avoid referencing Iran.
Several years later the company realized that its foreign subsidiaries’ transactions with Iran likely violated U.S. sanctions law and subsequently hired outside counsel to conduct an investigation, submitted a disclosure to OFAC, substantially cooperated with OFAC’s investigation, and took significant corrective actions. These included appointing an independent external compliance monitor responsible for auditing the company’s compliance with U.S. sanctions and export controls, establishing annual and quarterly reporting requirements related to U.S. sanctions compliance, adopting a code of conduct that includes a commitment to complying with trade compliance laws in all countries in which the company does business, adopting a new global sanctions and export controls compliance policy that utilizes an export compliance program manual, and providing export controls and sanctions compliance training.
OFAC considers the above actions to be mitigating factors, which helped reduce the penalty from its statutory maximum of $19.95 million. Aggravating factors included the company’s lengthy history of foreign subsidiary sales to Iran after being warned that those sales were problematic as well as senior management’s actual knowledge of the conduct at issue and facilitation of transactions with Iran.