Murad, LLC OFAC Settlement: $3.3M (2023)

Following a December 2009 meeting between U.S. Person-1, other senior Company executives, and the CEO of the Company's co-conspirator, an Iran-based distributor ("Iranian Distributor"), the Company entered into an exclusive agreement with the Iranian Distributor to sell the Company's products in the Middle East, including specifically in Iran. U.S. Person-1, who held general managerial responsibilities for the Company's sales and operations, signed the distribution agreement. The Company subsequently began exporting its products to Iran through the Iranian Distributor, despite having applied for but never receiving a specific license or other applicable guidance from OFAC; none of the exported goods for which the Company requested a license was either generally authorized or exempt from prohibition.

In May 2015, U.S. Person-1 signed a new distribution agreement with a related UAE-based company ("UAE Distributor") as the Company's sole Middle East distributor. Although this 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. The Company also provided support for the UAE Distributor to open and operate an independent Company-branded store in Tehran, Iran.

The Company was acquired by Unilever US on September 1, 2015. At no point prior to closing did the Company disclose its Iran-related activity, and Unilever US did not discover it during pre-acquisition due diligence, nor did it learn of an Iranian website ("Murad.ir") featuring the Company's products for sale, which was active from at least September 1, 2012 until December 5, 2018. Unilever US first learned of the Iran-related business on October 20, 2015, when an employee was forwarded an email from the UAE Distributor's CEO describing the time it took for Company products to reach Tehran from California. The following day, Unilever US' corporate counsel directed U.S. Person-1 to instruct the UAE Distributor to cease all exports to Iran. U.S. Person-1 sent the instruction but, prior to doing so, alerted another senior Company executive to ensure that the UAE Distributor's CEO would not suggest that any Company executives had approved the exports.

Despite this directive, senior Company executives, including U.S. Person-1, continued working with the UAE Distributor to export or oversee exports of the Company's products to Iran. In January 2016, U.S. Person-1 was told by Unilever US' corporate counsel that no relevant prohibitions had changed following the Joint Comprehensive Plan of Action; nevertheless, exports continued. 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.

The Company's last export to Iran occurred on January 24, 2018, following a bank inquiry about whether certain payments may have involved Iran. Over the approximately eight-year conspiracy, the Company exported services and more than $11 million in goods to Iran on at least 62 occasions, appearing to have violated the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560, including § 560.203(b). U.S. Person-1 separately settled three apparent violations under §§ 560.203(a) and 560.206 of the ITSR arising from executing the distribution agreements and overseeing the Company's Iran-related sales.

The compliance deficiencies underlying the apparent violation stemmed from the conduct of senior executives who facilitated exports to Iran; the lack of a sanctions compliance program (the Company's compliance efforts were focused on product safety despite also selling its products internationally); and post-acquisition reporting structures that were inadequate, including a compliance reporting line running from the Company to personnel in a Unilever division in the United Kingdom who lacked an adequate understanding of OFAC sanctions.

The statutory maximum civil monetary penalty applicable to the Company is $22,228,575. The Company voluntarily self-disclosed its apparent violation, and OFAC determined that the apparent violation constitutes an egregious case. Accordingly, under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A., the base civil monetary penalty is one-half of the applicable statutory maximum, which in this case is $11,114,287. The settlement amount of $3,334,286 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

U.S. Person-1 separately agreed to pay $175,000 to settle potential civil liability for three apparent violations. OFAC determined that U.S. Person-1's apparent violations were not voluntarily self-disclosed and that their conduct was egregious. The source does not provide statutory maximum or base penalty figures for U.S. Person-1's separate settlement.

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. 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 companies ensuring that conduct implicating OFAC sanctions is authorized, including by general or specific license, before engaging in what could be prohibited activity.

Lastly, this action emphasizes the importance of conducting sufficient pre- and post-acquisition due diligence in order 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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