U.S. Person-1 OFAC Settlement: $175K (2023)

Following a December 2009 meeting with the CEO of an Iran-based distributor ("Iranian Distributor"), U.S. Person-1 signed an exclusive distribution agreement with the Iranian Distributor for the Company to sell its products in the Middle East, including specifically in Iran. In May 2015, U.S. Person-1 signed a new distribution agreement, this time for a related United Arab Emirates-based company to become the Company's sole distributor in the Middle East ("UAE Distributor"). Although this later agreement did not specify Iran as a serviced territory, U.S. Person-1 should have understood that the UAE Distributor would export the Company's products to Iran, which it subsequently continued to do.

After Unilever US acquired the Company in September 2015, the Company continued completing shipments to Iran via the UAE Distributor through departments generally overseen by U.S. Person-1. OFAC found U.S. Person-1 responsible for at least three of these transactions. When Unilever US's corporate counsel directed U.S. Person-1 to instruct the UAE Distributor to cease all exports to Iran, U.S. Person-1 followed these instructions. Prior to doing so, however, U.S. Person-1 alerted another senior Company executive of the need to ensure that the UAE Distributor's CEO would not suggest that any Company executives approved the export of the Company's products to Iran.

In January 2016, after being told by Unilever US's corporate counsel that no relevant Iran sanctions prohibitions had changed following the Joint Comprehensive Plan of Action, U.S. Person-1 nonetheless continued working with the UAE Distributor to export, or generally oversee personnel exporting, the Company's products to Iran. In early 2017, in response to an Iranian salesman's inquiry, U.S. Person-1 asked a senior Company executive to improve the Company's marketing materials to help "maximize sell" of its products. U.S. Person-1 appears to have violated the ITSR, including §§ 560.203(a) and 560.206, by executing distribution agreements in furtherance of Company sales to Iran and overseeing relevant departments responsible for those sales, including in communicating internally and externally regarding sales to Iran.

U.S. Person-1 did not voluntarily self-disclose the apparent violations, and OFAC determined that the apparent violations constitute an egregious case. The statutory maximum civil monetary penalty applicable to U.S. Person-1 is $2,787,123. Under the Enforcement Guidelines, the base civil monetary penalty applicable in this matter is the applicable statutory maximum, which is $2,787,123. The settlement amount of $175,000 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

This case highlights that U.S. sanctions on Iran encompass a wide range of potentially violative conduct, including the formation and execution of conspiracies to engage in prohibited activities such as exporting goods to Iran and causing such exports to occur. OFAC's regulations and enforcement actions make clear that all U.S. persons — companies and individuals alike — face risks of violating U.S. sanctions when engaging in such dealings. Firms with potential sanctions exposure should implement measures to ensure that senior management both commit to and maintain a culture of compliance throughout the company. Senior executives with managerial responsibilities should take particular care to ensure awareness of applicable prohibitions by firm employees and refrain from and prevent potential violations.

Because businesses that lack a robust sanctions compliance function face significant risks, clear and efficient reporting streams that can rapidly identify red flags for further evaluation and action are important. In some circumstances, placement of a U.S. entity under the compliance structure of a non-U.S. entity that may lack sufficient familiarity with U.S. sanctions laws could prevent the prompt identification of and response to potentially prohibited conduct.

This action further underscores the importance of ensuring that conduct implicating OFAC sanctions is authorized, including by general or specific license, before engaging in what could be prohibited activity.

This action also emphasizes the importance of conducting sufficient pre- and post-acquisition due diligence to identify and promptly remediate compliance deficiencies. After merger and acquisition transactions are complete, companies should closely oversee their new business elements, in addition to their pre-existing units, to identify any sanctions-related risks or issues and take appropriate preventative and remedial measures. Reminders of established compliance policies alone may not result in changes sufficient to avoid a violation of U.S. economic and trade sanctions.

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