Stanley Black & Decker OFAC Settlement: $1.9M (2019)

The violations arose from GQ's export activities between on or about June 29, 2013 and on or about December 30, 2014. GQ exported and attempted to export 23 shipments of power tools and spare parts — with a total value of $3,201,647.73 — to Iran or to a third country with knowledge that such goods were intended specifically for supply, transshipment, or reexportation, directly or indirectly, to Iran. These transactions appear to have violated §§ 560.203, 560.204, and 560.215 of the ITSR.

Stanley Black & Decker had discovered GQ's Iran exports during due diligence in 2011 and made cessation of those sales a prerequisite condition of closing. GQ's representatives agreed. In May 2013, Stanley Black & Decker acquired a 60 percent interest in GQ and created a joint venture. Subsequent to the acquisition, Stanley Black & Decker provided compliance trainings but did not implement procedures to monitor or audit GQ's operations to ensure that Iran-related sales did not recur post-acquisition.

Despite written agreements GQ's senior management executed attesting that GQ would not engage in transactions with Iran, GQ continued to export goods to Iran throughout 2013 and 2014. Stanley Black & Decker's internal investigation determined various GQ board members and senior management participated in these activities with knowledge that such conduct violated its parent company's policies and U.S. economic sanctions. These personnel and other GQ employees appear to have engaged in non-routine business practices to conceal and facilitate GQ's prohibited exports. GQ utilized six trading companies as conduits for these sales — four companies located in the United Arab Emirates and two companies located in China. GQ employees created fictitious bills of lading with incorrect ports of discharge and places of delivery and instructed their customers not to write "Iran" on business documents, such as bills of lading.

OFAC determined that Stanley Black & Decker voluntarily self-disclosed the Apparent Violations on behalf of GQ, and that the apparent violations constitute an egregious case. The statutory maximum civil monetary penalty amount for the Apparent Violations is $6,922,757, and the base civil monetary penalty amount is $3,461,378. The settlement amount of $1,869,144 reflects OFAC's consideration of the General Factors under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A.

Consistent with its Settlement Agreement with OFAC, Stanley Black & Decker has committed to enhancing GQ's compliance procedures by ensuring that it has a management team in place that: (1) is committed to a culture of compliance; (2) conducts regular risk assessments to ensure that its internal controls appropriately mitigate the entity's sanctions-related risks; (3) conducts regularized audits; and (4) provides ongoing sanctions compliance training throughout GQ.

This enforcement action highlights the importance for U.S. companies to conduct sanctions-related due diligence both prior and subsequent to mergers and acquisitions, and to take appropriate steps to audit, monitor, and verify newly acquired subsidiaries and affiliates for OFAC compliance. U.S.-owned or -controlled foreign subsidiaries are subject to the ITSR and U.S. person parent companies may face potential exposure to civil monetary penalties vis-à-vis the actions of their foreign subsidiaries. Foreign acquisitions can pose unique risks that U.S. person parent companies need to address fully at all stages of its relationship with the subsidiary. U.S. parent companies are encouraged to take steps to mitigate risk to sanctions exposure, including by addressing known deficiencies like unconventional record-keeping practices, and any hindrances to monitoring, auditing, or investigating the foreign subsidiary's operations. Testing of compliance procedures and timely auditing of subsidiaries can mitigate the risk of exposure to U.S. economic sanctions violations.

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