On March 16, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced the entry into a $216,464 settlement with UniControl, Inc. (“UniControl”), a process controls and instrumentation manufacturer headquartered in Cleveland, Ohio, for 21 apparent violations of the Iranian Transactions and Sanctions Regulations (“ITSR”), mostly resulting from UniControl’s failure to address several warning signs that shipments may be intended specifically for supply, transshipment, or reexport to Iran.
According to OFAC, from approximately July 16, 2013 to March 25, 2017, UniControl made 21 shipments of air pressure switches to two European companies that were reexported to Iran. Although UniControl did not appear intent on purposely evading the ITSR with respect to these shipments, OFAC noted that the apparent violations occurred in large part because UniControl did not take appropriate steps to respond to multiple warning signs that it encountered when dealing with its European trade partners, which gave UniControl reason to know that its goods were being reexported to Iran. These “red flags” included the following:
- Early in their relationship, one of UniControl’s European trade partners asked if UniControl could supply to Iran, where it already had a significant market for UniControl products.Even though UniControl rejected the offer, OFAC stated that UniControl never took action to ensure that sales to this partner were not being reexported to Iran.
- UniControl and a European trade partner entered into a Sales Representative Agreement that explicitly listed Iran as part of its sales territory.OFAC indicated that UniControl never tried to update or amend the agreement to explicitly prohibit its products from being sold into Iran.
- When a European trade partner informed UniControl of internal company issues and holidays causing delays in shipping certain UniControl products to end-users, UniControl offered to make shipment directly to a purported third-party European end-user.The partner rebuffed the offer, citing problems with documentation and transportation issues.OFAC noted that UniControl did not seek clarification on this obfuscation or otherwise attempt to engage directly with the supposed end-user.
- On several occasions at European trade conferences, UniControl managers met with Iranians at a European trade partner’s booth, as well as one-on-one with an Iranian end-user.OFAC stated that UniControl never inquired with its partner as to the Iranian interest in UniControl products.
- One of UniControl’s European trade partners requested that UniControl remove its “Made in USA” label from a shipment of switches because an Iranian end-user may encounter difficulties with the stated origin of the products. Although the request raised questions within UniControl, OFAC indicated that UniControl still made two subsequent shipments to the European trade partner for reexport to Iran.
The statutory maximum civil monetary penalty that OFAC could have imposed against UniControl was $5,423,766. However, in settlingthe matter for $216,464, OFAC considered, in part, the fact that UniControl voluntarily self-disclosed the apparent violations, as well UniControl’s additional investments in strengthening its trade compliance procedures, including the following measures:
- Hiring outside counsel to assist in enhancing its sanctions compliance policies and procedures;
- Requiring customers to sign end-user and end-use certificates to ensure that UniControl products are not resold to prohibited end-users;
- Requiring end-user certificates from secondary and tertiary buyers of reexported products in instances where UniControl customers are reexporting UniControl products; and
- Including a Destination Control Statement to certain trade documents, such as internal sales orders, accounting forms, customer-order acknowledgements, and customer invoices.
The UniControl settlement demonstrates the importance for companies to identify and immediately resolve any warning signs that an intended transaction may result in a violation of U.S. sanctions. As OFAC notes in its Framework for OFAC Compliance Commitments, non-U.S. persons frequently have procured U.S.-origin goods with the specific intent of reexporting, transferring, or selling the items to persons, entities, countries, or territories targeted by OFAC sanctions, despite having received advanced notice (through contractual language or otherwise) that such conduct was prohibited. However, the fact that a counterparty causes a U.S. person to violate OFAC sanctions through its subsequent dealings without the U.S. person undertaking any overt action on its part does not absolve the U.S. person from liability, regardless of whether or not the counterparty acted in contravention of any contractual commitments relating to sanctions compliance.
In fact, the UniControl settlement shows that OFAC has and will continue to focus its enforcement actions involving exports or reexports to sanctioned targets on companies that ignore or fail to respond to numerous warning signs that such activity has or will occur. To mitigate this risk, companies should ensure that their sanctions compliance program includes robust internal controls that help identify, interdict, escalate, report (when appropriate), and maintain records pertaining to any activity that may be prohibited by U.S. sanctions laws and regulations.
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