NewTek, Inc. OFAC Settlement: $189.5K (2021)

From approximately December 2013 through May 2018, NewTek exported 49 products from the United States to two third-country distributors with knowledge or reason to know its products were intended specifically for a reseller located in Iran (the "Iranian Reseller"). On at least three occasions, NewTek also provided support, software updates, reseller training, or other services in support of sales to customers located in Iran. The Iranian Reseller sold three of the exported products to Islamic Republic of Iran Broadcasting (IRIB), an entity on OFAC's SDN List at the time of the relevant exports.

NewTek authorized distribution under two successive distributor agreements. The first, with a company located in France ("Distributor 1"), was in force until approximately October 2014 and authorized distribution and support in the "Middle East" region, which NewTek was informed specifically included Iran. As was evident through communications including monthly sales forecasts for Iran, NewTek knew that Distributor 1 intended to supply products to the Iranian Reseller prior to export, and NewTek provided credits to Distributor 1 for sales to the Iranian Reseller.

Beginning in 2013, NewTek's Chief Operating Officer led negotiations to transfer the Middle East sales territory to a company located in Dubai, UAE ("Distributor 2"). Around October 2014, NewTek and Distributor 2 entered into an agreement that remained in place throughout the relevant period and explicitly listed Iran among the authorized Middle East sales territory countries. As part of the transition, the Iranian Reseller was transferred from Distributor 1's reseller network to Distributor 2's, and NewTek exported goods and services to Distributor 2 intended specifically for the Iranian Reseller.

The conduct constituted apparent violations of §§ 560.204 and 560.206 of the ITSR and of E.O. 13628 with respect to the three products provided to IRIB. The total value of the transactions was $583,024; associated profits amounted to approximately $61,070. NewTek did not have export control or sanctions compliance policies, procedures, or training in place during the relevant period, and incorrectly believed that sales through third-party distributors to the Iranian Reseller were permissible because it did not deal directly with Iran.

The statutory maximum civil monetary penalty applicable in this matter is $15,031,546. OFAC determined that NewTek voluntarily self-disclosed the apparent violations and that the apparent violations constitute a non-egregious case. Accordingly, under OFAC's Economic Sanctions Enforcement Guidelines, the base civil monetary penalty amount applicable in this matter is $291,512. The settlement amount of $189,483 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

This enforcement action serves as a reminder that sales to third-country distributors with knowledge or reason to know that goods are intended specifically for Iran can give rise to apparent violations of the ITSR. Reliance on the understanding of an individual in a managerial or supervisory role, or reliance on informal sanctions compliance measures, may not be sufficient to mitigate sanctions compliance risks. Companies should make certain to have an accurate understanding of relevant U.S. sanctions regulations, especially when selling to global markets using sales models where potentially violative conduct may be more likely.

Commensurate with their risks, companies may consider sanctions compliance measures such as written policies and processes that address applicable sanctions concerns and clear guidance for employees. Employee trainings and education that ensure accurate understanding of relevant sanctions regulations are essential to an effective sanctions compliance program.

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