Berkshire Hathaway Inc. OFAC Settlement: $4.1M (2020)

From on or about December 2012 to on or about January 2016, Iscar Turkey, through the actions of certain employees, knowingly engaged in transactions, directly or indirectly, with persons subject to the jurisdiction of the Government of Iran that would have been prohibited pursuant to the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR), if engaged in by a U.S. person or in the United States. Specifically, Iscar Turkey sold cutting tools and related disposable inserts to two Turkish intermediary companies knowing that those goods would be supplied to an Iranian distributor for resale to Iranian end-users, including several end-users later identified as meeting the definition of the Government of Iran. Iscar Turkey completed 144 orders of goods that were ultimately resold and shipped to Iran with a total transactional value of $383,443 in apparent violation of § 560.215 of the ITSR. Iscar Turkey also purchased goods produced by other Berkshire subsidiaries to fulfill orders destined for Iran.

The conduct was initiated by Iscar Turkey's General Manager, who believed it was inevitable that U.S. and European Union sanctions against Iran would be lifted and sought to establish a foothold before that occurred. On June 11, 2012, Iscar Turkey's Sales Manager and two other employees traveled to Iran and met with senior managers of an Iranian distributor. Iscar Turkey then established a business relationship with that distributor and used two independent Turkish companies as intermediaries to conceal that goods were ultimately destined for Iran. In January 2013, Iscar Turkey provided one of the Turkish distributors with an open-ended authorization letter certifying it as an authorized distributor for Iscar Turkey products and products from four other Berkshire subsidiaries — a letter specifically used for sales in Iran.

To obfuscate its dealings with Iran, Iscar Turkey employees utilized private email addresses that bypassed corporate email controls; listed incorrect end-customer names for the majority of orders; used at least one fake name for a non-existent company; provided false assurances in response to compliance inquiries; provided fraudulent evidence of a compliance training session; and instructed employees to lie to interviewers when an internal investigation was initiated. The Iranian distributor initially made payments in cash denominated in Euros; the Turkish distributors also arranged with other Turkish companies to issue false invoices falsely indicating goods were going to other Turkish companies rather than Iran. The apparent violations occurred despite Berkshire and other Berkshire subsidiaries' repeated communications and policies to Iscar Turkey regarding U.S. sanctions against Iran. Certain Berkshire subsidiaries received emails with warning signs — including an Iranian address in the email chain or a reference to a customer known to be in Iran — but only one subsidiary informed Iscar Turkey that such transactions were prohibited.

The statutory maximum civil monetary penalty applicable in this matter is $36,841,344. OFAC determined that Berkshire voluntarily self-disclosed the apparent violations and that the apparent violations constitute an egregious case due to the actions of Iscar Turkey. Accordingly, under OFAC's Economic Sanctions Enforcement Guidelines, the base civil monetary penalty amount applicable in this matter is $18,420,672. The settlement amount of $4,144,651 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

This enforcement action highlights the importance of the following compliance measures: (1) performing appropriate due diligence, particularly with regard to affiliates, subsidiaries, or counter-parties that are known to transact with OFAC-sanctioned countries or persons, or that are otherwise determined to be higher risk based on a variety of factors, including their geographic location, customers and counterparties, or products and services; (2) ensuring subsidiaries understand their obligation to comply with all applicable OFAC sanctions, to include when they supply goods to other companies within their corporate chain, and to report potentially violative conduct; and (3) verifying the accuracy of end-users and associated underlying paperwork for goods shipped through third-country distributors, particularly where there are red flags indicating potential OFAC-sanctioned countries or persons.

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