AppliChem GmbH OFAC Civil Penalty: $5.5M (2019)

Between May 2012 and February 2016, AppliChem violated § 515.201 of the CACR by selling chemical reagents to Cuba on 304 occasions, with a transaction value of €2,833,701 (approximately $3,433,495).

The violations occurred despite three successive warnings from ITW following its January 1, 2012 acquisition. ITW first warned AppliChem on December 19, 2011, during acquisition negotiations, that it would be required to cease all Cuban transactions. After finalizing the acquisition, the General Manager of ITW's Reagents Division sent AppliChem's former owners a memorandum on January 12, 2012, explaining ITW's sanctions compliance guidelines, including the CACR. When AppliChem continued to complete and collect on existing Cuban orders under pre-acquisition contracts, ITW's European legal department issued a third warning on April 5, 2012, that all sales to Cuba were to be ceased with immediate effect.

Rather than ceasing sales, AppliChem's former owners designed and implemented what were called the "Caribbean Procedures" between February and April 2012. Under this scheme, Cuba was referred to by the code word "Caribbean" and no documents mentioning Cuba would be prepared or retained by AppliChem. AppliChem engaged an external logistics company and an independent hazardous materials consultant to prepare shipping documents and hazardous materials declarations that had previously been handled internally. AppliChem senior management conducted written and in-person training sessions for staff — particularly those in the logistics department — to perpetuate and fully conceal the scheme from ITW. The reasons for the Caribbean Procedures were "well known to AppliChem staff during this time" and were described as an "open secret" at AppliChem.

On two occasions prior to the anonymous ethics helpline report in 2016 — in March 2013 and June 2015 — AppliChem employees reported indications of continued Cuba sales to the General Manager of ITW's Reagents Division in Spain. The General Manager sought assurances from the intermediary company that a pending shipment would not be diverted to Cuba and reminded local employees of ITW's sanctions compliance policy, but did not initiate a fuller internal investigation. The scheme was ultimately uncovered on or about January 27, 2016, through an anonymous report to ITW's ethics helpline, which led to a full investigation revealing that AppliChem's former owners had continued the Cuba business through an intermediary company in Berlin, Germany after specifically representing to ITW that it had ceased. AppliChem's former owners are no longer employed by ITW.

OFAC determined that ITW voluntarily self-disclosed the violations on behalf of AppliChem, and that the violations constitute an egregious case. The statutory maximum civil monetary penalty applicable in this matter is $20,045,688. The base civil monetary penalty amount for the violations is $10,022,844. The assessed penalty of $5,512,564 reflects OFAC's consideration of aggravating and mitigating factors pursuant to the General Factors under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A.

This case demonstrates the importance of (i) implementing risk-based controls, such as regular audits, to ensure subsidiaries are complying with their obligations under OFAC's sanctions regulations, (ii) performing follow-up due diligence on acquisitions of foreign persons known to engage in historical transactions with sanctioned persons and jurisdictions, and (iii) appropriately responding to derogatory information regarding the sanctions compliance efforts of foreign persons subject to the jurisdiction of the United States.

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