3M Company OFAC Settlement: $9.6M (2023)

In November 2015, in anticipation of the JCPOA's implementation, employees at 3M's subsidiary 3M Gulf Limited ("3M Gulf") in Dubai began working on a proposal to sell reflective license plate sheeting ("RLPS") to a German company. When the JCPOA and General License H ("GL H") took effect in January 2016, GL H authorized foreign subsidiaries of U.S. companies to engage in certain transactions with Iran but explicitly excluded transactions with Iranian law enforcement agencies and affiliated entities, and did not authorize U.S.-person involvement with Iran-related transactions undertaken by foreign subsidiaries.

On March 3, 2016, the 3M Gulf senior manager leading the RLPS proposal submitted it to Trade Compliance ("TC") counsel, who approved it based on a misunderstanding, believing the German firm was the end user rather than an Iranian entity. The proposal was then forwarded for restricted party screening with the page containing parties involved and product end use omitted; as a result, only the German company was screened rather than the actual Iranian end-user.

On April 15, 2016, the German reseller notified the Proponents that it would not incorporate the RLPS into license plate production but would instead resell it directly to Bonyad Taavon Naja ("BTN") in Iran. Despite this material change, the Proponents did not inform Trade Compliance. Weeks later, an outside due diligence report flagged a connection between a BTN subsidiary and Iran's Law Enforcement Forces ("LEF"); the Proponents dismissed the concern, stating that the LEF connection was "expected" given that license plate issuance is a government function.

Between March 2016 and the signing of a Distributor Agreement in September 2016, the Proponents obfuscated deal details from colleagues, repeatedly misrepresenting the RLPS use as "conversion" into license plates after the German reseller had clarified it would resell to BTN, falsely claiming Trade Compliance had already approved the transactions, and switching the contracting entity from 3M Gulf (the sole subsidiary authorized for Iran-related sales activity) to 3M East, contrary to 3M policy. Between September 2016 and September 2018, 3M East sent 43 shipments of RLPS to the German reseller, which resold them to BTN.

A U.S.-person employee of 3M Gulf performed substantial work in furtherance of the Iran sales, including knowingly approving six credit notes relating to the Iran sales, contributing to two internal assessments, and assisting with a quality control issue, despite knowing the prohibition on U.S.-person involvement and having received internal guidance on this prohibition on multiple occasions. The Proponents were aware the U.S. person could not be involved but nonetheless instructed him to perform related tasks. The U.S. person also received sales incentives partially based on the Iran business in 2017 and 2018.

The shipments and U.S.-person involvement together resulted in 54 apparent violations of 31 C.F.R. 560.204, 560.206, and 560.215.

The statutory maximum civil monetary penalty applicable in this matter is $27,481,363. OFAC determined that 3M voluntarily self-disclosed the Apparent Violations and that the Apparent Violations constitute an egregious case. Accordingly, under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. Part 501, app. A., the base civil monetary penalty equals one-half of the statutory maximum: $13,740,682. The settlement amount of $9,618,477 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

This case demonstrates the importance of implementing and actively maintaining effective, risk-based sanctions compliance controls commensurate with a company's geographic, customer, and operational profile, especially when transacting with high-risk jurisdictions. Even when a company's policies appropriately account for its risks, effective controls are critical, especially when dealing with a changing sanctions landscape that might include the introduction of tailored authorizations that may require heightened scrutiny of particular transactions. The case further underscores the value of having a clear and effective compliance process in place before and while pursuing new business that may present sanctions risks.

Training is essential for an effective compliance program to enable all employees, and particularly those in a trade compliance function, to be aware of applicable policies and their associated controls, including understanding how to evaluate all proposed business and entities involved for sanctions concerns.

Parent companies are expected to oversee compliance with applicable U.S. sanctions laws within their subsidiaries, and to empower employees to alert headquarters trade compliance when business dealings need further review. Such efforts are more likely to succeed when a company promotes a culture of compliance throughout its organization, including its foreign subsidiaries. Effective sanctions compliance programs will encourage employees to place adherence to sanctions laws, including as reflected in internal trade compliance procedures, above any potential compensation for closing a high-risk deal that may cause the company to violate U.S. sanctions.

If a company with U.S.-person employees pursues business activities that some of their employees may be prohibited from participating in, it is essential to create and enforce a process by which such U.S.-person employees will recuse themselves.

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