Danfoss A/S OFAC Settlement: $4.4M (2022)

Between approximately November 21, 2013, and August 28, 2017, Danfoss FZCO, Danfoss's wholly owned UAE subsidiary, sold cooling and heating equipment and related components to customers in Sudan, Syria, and Iran. Danfoss FZCO employees directed these customers to remit payments to at least three accounts at banks located in the UAE, including Danfoss's U.S. Branch Account (the UAE branch of a U.S. financial institution). Customers in Iran, Syria, and Sudan used third-party agents such as money exchangers in non-sanctioned jurisdictions to pay Danfoss FZCO at this account, disguising the true originator or beneficiary of the transactions and preventing the bank's transactional screening filters from stopping the payments. Danfoss FZCO also used third-party payers to make five transfers from its U.S. Branch Account to parties in Syria and Iran. The total value of all transfers was approximately $16,959,683.

Danfoss FZCO was aware since at least 2011 that using a U.S. financial institution to send or receive payments related to sanctioned jurisdictions could be prohibited. In March 2011, Danfoss's U.S. bank rejected a payment related to Iran, and in February 2016, Danfoss's compliance division discovered that an Iranian customer had been invoiced in U.S. Dollars and advised Danfoss FZCO that such activity was impermissible. Despite these communications, Danfoss FZCO continued to use its U.S. Branch Account to collect payments from customers in sanctioned jurisdictions until on or about August 28, 2017.

The apparent violations occurred primarily because of deficiencies in Danfoss's global sanctions compliance program. Danfoss did not have in place procedures to regularly monitor Danfoss FZCO's activities to identify potential sanctions issues. Danfoss FZCO personnel, including the Regional Finance Director, did not have substantive training on U.S. sanctions and did not consult with Danfoss's Compliance Program Manager on the transactions giving rise to the apparent violations.

Danfoss appears to have violated § 1705(a) of the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. 1701-1705, 31 C.F.R. part 560 of the Iranian Transactions and Sanctions Regulations (ITSR), 31 C.F.R. part 542 of the Syrian Sanctions Regulations, and 31 C.F.R. part 538 of the Sudanese Sanctions Regulations (SSR), on 225 occasions by causing a U.S. financial institution to facilitate prohibited financial transactions and export financial services to Iran, Syria, or Sudan.

The statutory maximum civil monetary penalty applicable in this matter is $71,383,826. OFAC determined that Danfoss did not voluntarily self-disclose the apparent violations. Danfoss's financial institution identified the apparent violations in May 2017 and notified Danfoss; on October 31, 2017, Danfoss disclosed the apparent violations to OFAC, but OFAC was already in possession of relevant information and assessed that Danfoss' submission did not qualify as a voluntary self-disclosure. OFAC further determined 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 the applicable schedule amount for each apparent violation, which is $21,899,050. The settlement amount of $4,379,810 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

This enforcement action highlights the risks to multinational companies, including to non-U.S. entities, that involve the U.S. financial system in commercial activity involving an OFAC-sanctioned country, region, or person. Commercial activity that might not otherwise violate OFAC regulations, such as the sale of non-U.S. goods by a non-U.S. person to an entity in an OFAC-sanctioned country, can nonetheless cause a violation when the financial transactions related to that activity are processed through or involve U.S. financial institutions.

This action also emphasizes the importance for entities to maintain effective, risk-based sanctions compliance programs, and to train key staff including senior management to identify and escalate potential violations of U.S. sanctions to the appropriate compliance personnel. It is particularly important to implement controls specific to the risks posed by the regions in which subsidiaries operate, and any risks stemming from specific business practices, such as accepting payments from third parties.

Relatedly, this case demonstrates the value of considering OFAC guidance and advisories to inform and strengthen sanctions compliance programs. OFAC published an advisory on January 10, 2013, alerting U.S. financial institutions to Iranian efforts to circumvent U.S. sanctions, and in particular risks arising from the use of third-country exchange houses and trading companies acting as money transmitters in support of business with Iran. Even where a non-U.S. company engages in otherwise permissible trade with Iran, knowledge of the risks described in the advisory may help the company avoid engaging in prohibited dealings with U.S. financial institutions and other persons.

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