A Tale of Two Recent OFAC Settlements
In recent weeks, the Department of Treasury, Office of Foreign Assets Control (“OFAC”) announced civil liability settlements with two U.S. companies. Both cases involved alleged violations of the Iranian Transactions Regulations (the “ITR”), but one case was viewed as egregious, while the other was non-egregious. Both cases offer insight as to activities and factors weighed by OFAC in concluding civil settlements for violations of the ITR.
In mid-January OFAC announced that Dal-Tech Devices, Inc., of Boca Raton, Florida, agreed to pay $10,000 to settle its potential civil liability for apparent violations of the ITR. Dal-Tech distributes microwave radio frequency devices. While under prior ownership and management, the company apparently violated the ITR by selling and exporting radio frequency measurement devices (“RF devices”) to Austria, knowing the products were ultimately destined for Iran. The total value of the shipment was under $3,500. When the company learned the shipment had been returned from Austria without delivery, it re-exported the same RF devices to Slovenia for transshipment to Iran. The OFAC announcement explains the civil settlement coincides with a Deferred Prosecution Agreement (the “DPA”) between Dal-Tech and the U.S. Attorney’s Office for the District of Delaware. Dal-Tech did not voluntarily disclose the apparent violations to OFAC. The alleged violations constitute an egregious case.
Dal-Tech faced a base penalty of $500,000 for its apparent violations. The relative minimal settlement resulted from OFAC’s consideration of the facts and circumstances of the case, assessed pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines. Specifically, OFAC considered the following facts and circumstances: the criminal charges set forth in the DPA reflect knowing and willful conduct by an employee that is attributable to the company; Dal-Tech’s prior management at least had reason to know that the company’s goods were ultimately destined for Iran; Dal-Tech has not been the subject of any prior OFAC enforcement action; Dal-Tech lacked a sanctions compliance program at the time of the apparent violations; pursuant to the DPA, the company will implement a compliance program that includes sanctions and export compliance training of all employees; the settlement with OFAC is part of a comprehensive settlement with other federal law enforcement agencies; and the enforcement response is proportionate to the nature of the violations, given the totality of the circumstances. Clearly, the factors considered were a combination of positive and negative factors. The nature of the goods involved and repeated efforts to complete the sale via transshipment appear to have caused this case to be egregious.
On February 1, OFAC then announced that Offshore Marine Laboratories (“OML”), of Gardena, California, agreed to pay $97,695 to settle potential civil liability for alleged violations of the ITR and Executive Order 13382, “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters” (“EO 13382”). Despite the more substantial settlement amount, this was a non-egregious case.
It was alleged that between July 2007 and July 17, 2008, OML exported eight shipments of spare parts and supplies to a company in the UAE. The goods were intended for an offshore oil drilling rig located in Iranian waters. OFAC explained the rig owner and operator were located in Iran, and five of the shipments occurred after the rig owner’s property and interests in property were blocked pursuant to EO 13382. That Executive Order was signed in 2005 by President Bush and is aimed at freezing the assets of proliferators of weapons of mass destruction and their supporters. Importantly, EO 13382 prohibits all transactions between those designated under it and any U.S. person and freezes any assets the designees may have under U.S. jurisdiction.
Similar to the Dal-Tech case, OML did not voluntarily disclose this matter to OFAC. OML faced a base penalty in the amount $167,000 for its alleged violations. OFAC considered the following facts and circumstances in this case to reach the settlement with OML: OML harmed sanctions program objectives because the transactions aided the development of Iranian petroleum resources; OML had no OFAC compliance program in place at the time of the alleged violations; OML has no history of prior OFAC violations; OML demonstrated substantial cooperation with OFAC throughout the investigation, including entering into a statute of limitations tolling agreement; and OML took remedial measures by implementing an OFAC compliance program.
When comparing the facts and circumstances considered by OFAC in each case, it is understandable why Dal-Tech was an egregious case. The seeming disparity in the settlement amounts of an egregious versus non-egregious case appears to be explained by the parallel criminal case in Dal-Tech.
The DPA details how an initial arrest and conviction of an Iranian national arms dealer and search of his laptop uncovered emails with a former Dal-Tech employee regarding the attempted shipments of RF devices. None of the shipments reached Iran because it was part of an undercover investigation by Immigration & Customs Enforcement (“ICE”). A search of the laptop uncovered thousands of emails with hundreds of U.S. companies. The DPA also details the cooperation and significant remedial measures that Dal-Tech will undertake, including ongoing cooperation with investigators who, no doubt, are interested in learning the full scope of the arms dealer’s efforts to procure U.S. military equipment for Iran.
The Dal-Tech case provides insight on how those seeking to procure goods for Iran will contact hundreds of U.S. companies in an effort to find someone within a company willing to make a sale. Companies of all sizes and in all sectors must have internal controls and robust export compliance measures in place to avoid the potential to become involved in those illicit efforts. The OML case additionally shows that a robust export compliance program that screens potential transactions early can avoid even non-egregious export and economic sanctions violations that are financially costly to companies and cause reputational harm.