Sojitz (Hong Kong) OFAC Settlement: $5.2M (2022)

From August 2016 through May 2018, certain Sojitz HK employees acting contrary to company-wide policies and procedures ("noncompliant employees") caused Sojitz HK to purchase approximately 64,000 tons of Iranian-origin HDPE from a supplier in Thailand for resale to buyers in China. Sojitz HK paid the purchase price by wire transfer to the Thai supplier upon shipment of the HDPE to Chinese buyers. Throughout the course of the HDPE Trading relationship, Sojitz HK made 60 separate U.S. dollar payments from its Hong Kong bank to the Thai supplier's banks in Thailand, transferring a total of $75,603,411. Each of these U.S. dollar payments were processed and settled through multiple U.S. financial institutions, including the U.S. correspondent banks of the Hong Kong and Thai banks.

Immediately prior to the HDPE Trading, these noncompliant employees were explicitly and repeatedly advised that they could not make U.S. dollar payments in connection with Iran-related business transactions. Nevertheless, the noncompliant employees omitted the HDPE's Iranian country of origin information from all relevant transactional documents, including by requesting that the Thai supplier make no reference to Iran on the bills of lading. During Sojitz HK's internal business approval processes, the noncompliant employees concealed the HDPE's country of origin from senior management and compliance personnel by stating that the HDPE was produced by the supplier in Thailand. Accordingly, neither the executive management nor the compliance personnel of Sojitz HK and its parent company were aware of the Iranian origin of the goods or of the noncompliant employees' misconduct and concealment.

Because Sojitz HK's funds transfer instructions omitted references to Iran, the U.S. financial institutions did not identify the transfers as violating sanctions prohibitions. These actions resulted in apparent violations of § 560.203 of the ITSR by causing multiple U.S. financial institutions to (i) engage in unauthorized financial transactions related to goods of Iranian origin in violation of § 560.206 of the ITSR and (ii) facilitate Sojitz HK's Iran-related financial transactions that would have been prohibited if performed by a U.S. person in violation of § 560.208 of the ITSR.

OFAC determined that Sojitz HK voluntarily self-disclosed the Apparent Violations and that the Apparent Violations constitute a non-egregious case. The statutory maximum civil monetary penalty applicable in this matter is $151,545,831. Under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. Part 501, app. A, the base civil monetary penalty equals the sum of one-half of the transaction value for each apparent violation, capped at the lesser of $155,781 or one-half of the statutory maximum per each apparent violation, totaling $8,713,831. The settlement amount of $5,228,298 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

This case demonstrates the importance of effective risk-based internal controls to identify, interdict, escalate, and prevent activity prohibited by the sanctions programs administered by OFAC. Even where elements of a reasonable compliance program are in place, employees may act on their own initiative to pursue profit over compliance and find ways to circumvent their organization's policies and procedures. In such cases, their actions can result in violations attributable to their organizations. This case also highlights the risks and potential costs that non-U.S. companies are exposed to when the U.S. financial system is used for transactions that may involve sanctioned persons or jurisdictions.

To prevent such misconduct, U.S. and foreign companies should conduct robust risk assessments to identify activities that pose greater sanctions risks, including of their supply chains, products, and services, and institute appropriately tailored risk-based procedures designed to minimize violations, including the ability of "rogue" employees to circumvent internal controls. Testing and auditing to assess the effectiveness of a firm's compliance program may help guard against such conduct. This case further illustrates the importance for parent companies to ensure that appropriate compliance programs and procedures are implemented at their overseas subsidiaries and to exercise appropriate oversight over activities that may pose sanctions risks.

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