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Some Takeaways from an Ohio-Based Manufacturer OFAC Settlement over Iran Sanctions Violations Some Takeaways from an Ohio-Based Manufacturer OFAC Settlement over Iran Sanctions Violations

Some Takeaways from an Ohio-Based Manufacturer OFAC Settlement over Iran Sanctions Violations

Companies exporting products or services internationally are often surprised to learn of the restrictions and prohibitions the U.S. Department of Treasury imposes on trading activities with a number of embargoed countries and tens of thousands of companies and individuals. Enforced by the Office of Foreign Assets Control (OFAC), U.S. sanctions routinely catch manufacturers, banks, and high technology companies by surprise, with often serious consequences. An example of this is a recent settlement, made public this week, involving an Ohio-based manufacturer who exported a small number of airflow pressure switches, valued at $687,189, to two European companies that apparently re-exported those switches to customers in Iran. Four years later, the manufacturer settled with OFAC, paying a civil penalty for $216,464, which was negotiated down from $5,423,766, the potential statutory maximum for the apparent violations. Not mentioned in the settlement are the costs of negotiating these settlements, which typically take several years and involve the company undertaking an internal investigation that provides the basis for a voluntary self-disclosure, as happened here.

The OFAC settlement—limited in details—provides some useful pointers for all companies trading internationally to avoid an OFAC violation. The first key pointer is to be aware that your third parties are typically the main source of risk and you don’t eliminate liability by trading with a sanctioned entity through another entity. In this settlement, the manufacturer acknowledged it knew or had reason to know that several European trading partners intended to send the goods to customers in Iran.

Another pointer is to pay attention to “red flags”—here, the manufacturer acknowledged the European trading partners had disclosed they had a strong market for sales in Iran. Another warning indicator was an agreement with one of the European companies that expressly identified Iran as a re-seller market.

Taking compliance seriously may be the main overriding lesson in this settlement—the U.S. manufacturer acknowledged, after consulting with outside legal counsel and doing a voluntary self-disclosure, that it had actual knowledge that in two instances, goods were going to be re-exported to Iran. For example, the manufacturer was asked to remove “Made in USA” labels from the goods to be exported because it might have caused problems for the Iranian customer. Knowing violations of an OFAC sanctions program can lead to serious consequences—not just for the company but also for individual employees and officers. Here it appears OFAC gave the manufacturer considerable credit for its self-disclosure and remediation efforts, the main one being implementing a strong compliance program, training, and internal controls. Such a program, preferably implemented and kept operational, constitutes the best defense to avoiding inadvertent violations and all the complications, costs, and reputational damage that follow.

If you have questions concerning export controls, Ice Miller has extensive experience assisting companies to comply with laws governing the export of goods, technology, software, and services, and helping companies navigate OFAC inquiries. Our team includes Guillermo Christensen, managing partner of the firm’s Washington DC office and a former CIA officer with national security experience in the intelligence community and internationally with the U.S. Department of State; and Christian Robertson, a former U.S. Air Force intelligence officer who regularly advises clients on international supply chain matters.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
 
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