SCG Plastics Co., Ltd. OFAC Settlement: $20M (2024)

In March 2005, SCG Plastics' parent company, SCG Chemicals Co., Ltd., and two unaffiliated companies established a Singaporean company to enter into a joint venture with the National Petrochemical Company of Iran ("NPC"), part of the Government of Iran. That joint venture, Mehr Petrochemical Company ("Mehr"), constructed a petrochemical plant in Assaluyeh, Iran, which began production in 2009 and has the capacity to produce approximately 300,000 metric tons of HDPE annually. Under a 2006 distribution agreement, SCG Plastics purchased and resold 60 percent of Mehr's output of Iranian-origin HDPE to its customers, generally manufacturers in East Asia, from 2009 to July 2018, with a year-long pause from 2013 to 2014.

SCG Plastics received payment by issuing invoices instructing customers to remit U.S. dollar-denominated payments to its bank accounts in Thailand, processed by U.S. financial institutions acting as correspondent banks. To effectuate these payments, SCG Plastics employed shipping and documentation practices that obfuscated the fact that the HDPE it sold was a product of Iran, thereby evading detection by U.S. correspondent banks. Specifically, SCG Plastics repeatedly issued shipping and payment documents that listed variants of the term "Middle East" as the country of origin rather than "Iran." Export pro forma invoices listed the loading port as "any port in the Middle East" or "Jebel Ali, UAE" without any mention of the Iranian loading port, Assaluyeh. Final commercial invoices similarly omitted the Iranian nexus, listing shipments as from Jebel Ali, UAE and entering "Middle East" as the HDPE's country of origin. SCG Plastics also transshipped the Iranian-origin HDPE through the UAE; once cargo arrived there, under SCG Plastics' direction, its shipping agent issued an ocean bill of lading and corresponding shipping documents indicating Jebel Ali, UAE as the port of loading instead of Iran.

Separately, on at least ten occasions, SCG Plastics initiated U.S. dollar wire transfers on behalf of Mehr to pay Mehr's outstanding debts to third-party vendors without disclosing that the payments were on behalf of an Iranian entity. Payment instructions misleadingly stated the payments were "for payment for goods," even though SCG Plastics had not purchased goods from those vendors. Where invoicing vendors were Iranian, Mehr directed SCG Plastics to pay into bank accounts held under non-Iranian companies' names in countries other than Iran, further obfuscating Iranian parties' roles in these transactions.

OFAC determined that by engaging in this conduct, SCG Plastics committed apparent violations of § 560.203(a) of the Iranian Transactions and Sanctions Regulations (ITSR), 31 C.F.R. part 560, by causing U.S. financial institutions to engage in unauthorized financial transactions related to sales of Iranian-origin goods, in apparent violation of §§ 560.204, 560.206, and 560.208 of the ITSR.

The 467 apparent violations fall into two categories with distinct voluntary self-disclosure status. SCG Plastics voluntarily self-disclosed the 10 transactions in the second category (U.S. dollar wire transfers initiated on behalf of Mehr totaling $1,808,357) but did not voluntarily self-disclose the 457 transactions in the first category (U.S. dollar payments received for Iranian-origin HDPE sales totaling $289,345,761). OFAC determined that all 467 apparent violations constitute egregious violations.

Under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A., the base civil monetary penalty applicable in this matter equals $597,648,703. The statutory maximum civil monetary penalty applicable to the 467 apparent violations is $600,399,124.

The settlement amount of $20,000,000 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines and TPE's agreement to implement U.S. sanctions compliance commitments for five years.

This case highlights the risks and potential costs that non-U.S. companies are exposed to when using the U.S. financial system for transactions that may involve U.S. sanctioned persons or jurisdictions. 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 result in a violation when the financial transactions related to that activity are processed through or involve U.S. financial institutions. Non-U.S. companies that obfuscate the involvement of sanctioned persons or jurisdictions in shipping or payment documentation so that U.S. financial institutions process those transactions expose themselves to significant penalties.

Non-U.S. companies engaging in transactions involving U.S. persons are well served by implementing a risk-based sanctions compliance program. Such a program should include risk assessments to identify business partners or activities that pose potential sanctions-related risks, as well as effective risk-based internal controls to identify, interdict, escalate, and prevent violations of OFAC-administered sanctions.

OFAC has repeatedly issued guidance highlighting Iran sanctions-related risks in the energy and maritime sectors. A May 14, 2020 joint advisory issued by OFAC, the U.S. Department of State, and the U.S. Coast Guard emphasized that complete and accurate shipping documentation is critical to ensuring all parties to a transaction understand the parties, goods, and vessels involved in a given shipment, noting that companies have been known to falsify vessel, cargo, and other trade documentation to obscure the origin of petroleum shipments. Attention to these illicit practices remains especially important when operating in or near high-risk jurisdictions, which may include areas frequently used for potentially evasive transportation-related activities.

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