Kollmorgen OFAC Settlement: $13.4K (2019)

Kollmorgen acquired control of Elsim in early 2013, at which point Elsim became subject to the ITSR's prohibitions. Pre-acquisition sanctions due diligence — conducted by an external law firm and an external auditing and consulting company — revealed that Elsim had previously made sales to, and had customers in, Iran. Kollmorgen responded by implementing an extensive set of compliance measures, including: reviewing Elsim's entire customer database; blocking Iran-related customers from placing future orders; issuing a memorandum to all Elsim employees on the legal requirements of the ITSR; conducting in-person trainings on trade compliance; requiring customers to agree to contract terms prohibiting resale of Elsim products to Iran; mandating quarterly certifications from Elsim senior management confirming no products or services were being sent to Iran; and establishing an ethics hotline for reporting violations.

Despite these measures, Elsim management willfully dispatched employees to Iran on six occasions between July 2013 and July 2015 to service machines containing Elsim products and to provide other products, parts, or services — totaling $14,867 in value — with knowledge they were destined for Iranian end-users. Elsim management knew of and directed this conduct, threatened to fire employees who refused to travel to Iran, and instructed returning employees to falsify corporate records by recording the trips as vacation rather than business travel. Over the two-year period, Elsim management regularly and fraudulently certified to Kollmorgen that no Elsim products or services were being sent to Iran.

The conduct came to light in late October 2015 when an Elsim employee filed an internal complaint via Kollmorgen's ethics hotline. Kollmorgen retained outside counsel to investigate. Upon learning of the investigation, Elsim managers attempted to obstruct it by instructing employees to delete references to Iran in company records, misleading Kollmorgen's attorneys, and attempting to delete Iran-related emails. Kollmorgen nonetheless uncovered the apparent violations, completed a full investigation, and disclosed its findings to OFAC in a comprehensive report. After the apparent violations were uncovered, Kollmorgen terminated the Elsim managers responsible, implemented new compliance procedures for Elsim employees, required pre-approval from an officer based outside Turkey for all foreign after-sales service trips, and directed Elsim to inform its major Turkish customers that Elsim cannot provide goods or services to Iran.

OFAC determined that Kollmorgen voluntarily self-disclosed the apparent violations and that the apparent violations constitute a non-egregious case. The statutory maximum civil monetary penalty applicable is $1,500,000. The base civil monetary penalty amount for the apparent violations is $7,434. The $13,381 settlement amount reflects OFAC's consideration of the General Factors under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A.

Notwithstanding Kollmorgen's extensive compliance efforts, OFAC determined a penalty was the appropriate administrative response due to Elsim's egregious conduct and specific risk profile, including that Elsim had previously engaged in business with Iran, and because the conduct of Elsim management and their subsequent attempts to impede Kollmorgen's internal investigation warranted further action. If OFAC had determined this case was egregious, the base civil monetary penalty amount for the apparent violations would have been $750,000.

In conjunction with this enforcement action, OFAC sanctioned Evren Kayakiran, the Elsim manager primarily responsible for the conduct that led to the apparent violations, pursuant to Executive Order 13608, "Prohibiting Certain Transactions With and Suspending Entry Into the United States of Foreign Sanctions Evaders With Respect to Iran and Syria." E.O. 13608 authorizes the Secretary of the Treasury to sanction any foreign person determined to have violated, attempted to violate, conspired to violate, or caused a violation of the ITSR.

This case highlights the importance of: (1) performing heightened due diligence, particularly with regard to affiliates, subsidiaries, or counterparties known to transact with OFAC-sanctioned countries or persons, or that otherwise pose high risks due to their geographic location, customers and/or suppliers, or products and services they offer; and (2) implementing proactive controls when U.S. persons, directly or indirectly, acquire companies with preexisting relationships with sanctioned persons and jurisdictions.

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