Córdoba Music Group LLC OFAC Settlement: $41.6K (2024)

Between June 4, 2014 and October 30, 2018, Córdoba maintained a distribution agreement with a Dubai-based company for sales in the Middle East, including Iran. In 2018, Córdoba sought to amend the agreement to remove Iran from the territory because it had not successfully generated any sales in Iran and believed a new sales channel would help generate business.

Córdoba had previously become acquainted with an Iranian company at a trade show in Anaheim, California, and entered into an informal arrangement for it to distribute Córdoba products in Iran. Sales through this new partner began in November 2019. The new Iranian distributor instructed Córdoba to bill and ship products to a Dubai-based general trading company, which then shipped the products to Iran. Pursuant to this arrangement, Córdoba shipped instruments and related accessories valued at $118,831 that it knew to be ultimately destined for Iran on nine occasions between November 26, 2019 and March 30, 2022, in apparent violation of the ITSR, 31 C.F.R. § 560.204(a), which prohibits the exportation, reexportation, sale, or supply of goods from the United States, or by a United States person, to a person in a third country when there is knowledge that such goods are intended specifically for supply, transshipment, or reexportation, directly or indirectly, to Iran.

Although Córdoba knew the products were destined for Iran, it apparently did not realize that indirect exports to Iran violated U.S. sanctions. This failure was due to a lack of sanctions and export compliance training, interactions with Iranian distributors at domestic and international trade conferences, competitors allegedly selling their products in Iran, and the mistaken belief that indirect musical instrument sales to Iran were not prohibited.

In February 2023, Córdoba was acquired by another U.S. company. Two months after the acquisition, a member of Córdoba's sales team forwarded to the new parent a draft distribution agreement with the Iranian distributor providing that it would sell Córdoba's products solely in Iran. Upon receiving the email, the new parent's leadership directed Córdoba to terminate its business relationship and any pending transactions with the distributor.

The statutory maximum civil monetary penalty applicable in this matter is $3,313,224. OFAC determined that Córdoba voluntarily self-disclosed the apparent violations and that the apparent violations constitute a non-egregious case. Accordingly, under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A, the base civil monetary penalty equals the sum of one-half of the transaction value for each apparent violation, which is $59,416. The settlement amount of $41,591 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

This case demonstrates the importance of companies incorporating risk-based sanctions compliance into their business functions, especially when the companies are selling their products to a global customer base. As geographic reach expands, so does possible risk.

This case similarly illustrates the risks facing companies of any size operating internationally that do not develop or maintain basic awareness of sanctions risks and do not institute appropriate measures to identify and prevent potential violations. Employee trainings and education that ensure accurate understanding of relevant sanctions regulations are essential to an effective sanctions compliance program. In addition, it highlights the caution that should be taken when discussing possible international distribution channels, such as at trade shows, where representatives from sanctioned countries may be lawfully in attendance but seeking to cultivate relationships with U.S. businesses that could result in prohibited trade. Such discussions may not reflect a clear understanding of which types of trade may be allowed under U.S. law. Finally, this case reinforces the importance of compliance from a business perspective, since prospective acquirers may be liable for pre-acquisition violations.

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