Lack of Familiarity with US Sanctions Results in Steel Manufacturer Settling with OFAC for Apparent Violations
On April 19, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced the entry into a $435,003 settlement with Alliance Steel, Inc. (“Alliance”), a fully integrated manufacturer of metal building systems, structural steel, and components headquartered in Oklahoma City, Oklahoma, for 61 apparent violations of the Iranian Transactions and Sanctions Regulations (“ITSR”), mainly resulting from the Company’s lack of understanding as to the application of U.S. sanctions laws to its isolated international activity.1
According to OFAC, from 2013-2018, Alliance outsourced a significant portion of its engineering work that could not be performed by the Company’s available resources to an Iranian firm that was owned by the brother of Alliance’s Chief Engineer and Vice President of Engineering. Although this Company official initiated the business connection, many senior management officials at Alliance were aware of this ongoing activity, some of whom were involved in approving each transaction and payment therefor. According to OFAC, Alliance claimed that these management officials were “not attuned to the laws and regulations administered by OFAC” because, except for this business arrangement, the Company operates entirely within the United States. It was only after a new Chief Executive Officer was hired in 2018 that had familiarity with the OFAC sanctions regimes that Alliance terminated all further activity with the Iranian firm and voluntarily self-disclosed the apparent violations to OFAC.
The statutory maximum civil monetary penalty that OFAC could have imposed against Alliance was $17,335,192. However, in settling the matter for $435,003, OFAC considered, in part, the fact that Alliance voluntarily self-disclosed the apparent violations, as well as Alliance’s commitment to develop and implement an export compliance policy requiring, inter alia, that Company personnel be trained on U.S. sanctions compliance and that international contracting opportunities be approved by the Company’s president.
The Alliance settlement stresses the importance for U.S. companies to have a comprehensive understanding of the application of U.S. sanctions (and export control) laws and regulations prior to engaging in any proposed transaction or dealing that will take place outside the U.S. or directly or indirectly involve non-U.S. persons, even when such activity may be an isolated, “one-off” occurrence. As OFAC notes in its Framework for OFAC Compliance Commitments,2 U.S. companies have frequently committed sanctions violations because key personnel simply were not aware that OFAC sanctions applied due to their company’s status as a U.S. person or to the involvement of U.S. persons, the U.S. financial system, or U.S.-origin goods and technology in the activity undertaken. As the Alliance case clearly shows, OFAC does not consider a company’s “failure to understand” U.S. sanctions risks a suitable defense when violations occur, even when that company has no prior experience with international business activity.
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