Background

The Office of Foreign Assets Control reports that a U.S. company has agreed to pay $4.1 million to settle its potential civil liability for trade-related transactions and exports to Iran engaged in by its Turkish subsidiary.

The subsidiary sold cutting tools and related inserts to two third-party Turkish distributors knowing that such goods would be shipped to a distributor in Iran for resale to Iranian end-users, including several entities later identified as meeting the definition of the government of Iran. These violations occurred under the direction of senior managers despite repeated communications and policies from the parent company regarding U.S. sanctions against Iran, and the subsidiary took steps to conceal these activities from the parent company. OFAC states that this conduct “represents particularly serious apparent violations of the law calling for a strong enforcement action.”

The statutory maximum civil monetary penalty in this matter is $36.8 million and the base penalty is $18.4 million. In addition to the above, aggravating factors included (1) the subsidiary’s senior management sought out business activities in Iran with the express purpose of building a foothold in that market when it and other companies were prohibited from doing so and (2) the subsidiary violated prohibitions placed on Iran at a time when those prohibitions were intended to impose sustained pressure on Iran, having the effect of undermining U.S. leverage in negotiations with Iran. Mitigating factors included the parent company’s voluntary self-disclosure, cooperation with OFAC’s investigation, and remedial measures, including enhancing compliance procedures for foreign subsidiaries.

OFAC states that this case highlights the importance of the following compliance measures in appropriate circumstances: (1) performing appropriate due diligence, particularly with regard to affiliates, subsidiaries, or counterparties known to transact with OFAC-sanctioned countries or persons or that are otherwise determined to be higher risk based on factors such as geographic location, customers and counterparties, or products and services; (2) ensuring that subsidiaries understand their obligation to comply with all applicable OFAC sanctions, including when they supply goods to other companies within their corporate chain, and to report potentially violative conduct; and (3) verifying the accuracy of end-users and associated underlying paperwork for goods shipped through third-country distributors, particularly where there are red flags indicating potential OFAC-sanctioned countries or persons.

For more information on avoiding violations of U.S. sanctions laws and regulations, please contact Kristine Pirnia at (202) 730-4964.

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