On July 19, 2021, the Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it had entered into settlement agreements with two subsidiaries of Alfa Laval AB, the UAE-based Alfa Laval Middle East Ltd. (“AL Middle East”) and the US-based Alfa Laval Inc. (“AL US”) to settle apparent violations of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560. The alleged violations arose out of the 2016 sale of approximately $185,000 worth of US-made products to a company based in Iran.
The settlement agreements detail the apparent violations that led to the settlement. AL US received an inquiry from an Iran-based oil distributor requesting to purchase US-manufactured fluid cleaning units. AL US informed the company that it could not export US-manufactured equipment into Iran, but referred the company to AL Middle East. AL Middle East subsequently agreed to the sale and placed an order for the equipment from AL US OFAC alleged that AL Middle East conspired with several other companies to “actively mislead” AL US about the identity of the ultimate end-user.
In its settlement agreement with AL Middle East, OFAC did not identify any mitigating factors. OFAC alleged that AL Middle East was aware of that US sanctions prohibited the transaction and that AL Middle East’s parent company had previously advised it not to ship US-made products to Iran. Under the terms of the settlement, AL Middle East agreed to implement new compliance measures and pay OFAC $415,695.
In its settlement with AL US, OFAC faulted AL US both for the initial referral to AL Middle East and for ignoring subsequent clues suggesting that AL Middle East planned to ship the equipment to Iran. AL Middle East sent emails and invoices to AL US containing references to Iran and the Iranian company. AL US inquired about these references but accepted AL Middle East’s assurance that the equipment was intended for a different company in the UAE. OFAC found that there were three significant mitigating factors. First, AL US had no history of violations in the prior five years. Second, AL US hired outside counsel to conduct a “thorough” internal investigation and implemented new compliance measures. Finally, AL US provided “substantial cooperation” to OFAC during its investigation. In light of these factors, OFAC settled with AL US for $16,875.
These settlements demonstrate the risk of insufficient sanctions training and controls. Although AL US correctly recognized that a direct sale to the Iranian company was prohibited, it did not recognize that the referral to a foreign sister company could also constitute a violation by helping to facilitate a prohibited transaction. The settlements also show that companies should exercise caution if there are any signs that a potential transaction is being misrepresented. The relatively more lenient AL US settlement demonstrates the value of thoroughly investigating potential violations, cooperating with government investigators, and proactively remediating internal sanctions compliance deficiencies.
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