Yantai Jereh Oilfield Services OFAC Settlement: $2.8M

From on or about October 2, 2014 to on or about March 4, 2016, the Jereh Group appears to have violated §§ 560.203 and 560.204 of the ITSR on at least 11 occasions when it exported or reexported, or attempted to export or reexport, U.S.-origin goods ultimately intended for end-users in Iran by way of China. Jereh Group also exported certain U.S.-origin items with knowledge or reason to know that the items were intended for production of, for commingling with, or for incorporation into goods made in China to be supplied, transshipped, or reexported to end-users in Iran. Two of the 11 shipments were seized by U.S. Customs and Border Protection prior to exiting the United States. The goods included oilfield equipment such as spare parts, coiled tubing strings, and pump sets.

Beginning in late 2013, a former Jereh Group Sales Executive and a former Jereh Group Business Manager arranged meetings in Iran and/or with Iranian customers. Through these and other communications, both individuals developed a scheme utilizing intermediary companies, including a Chinese-based trading company named Jinan Tongbaolai Oilfield Equipment Co., Ltd. (JNTBL) and a UAE distribution company named Dubai Great Technology Trading LLC (DGT), to sell and ship Jereh Group products to Iran. Two separate contracts were signed: one between Jereh Group and JNTBL, and one between JNTBL and DGT, for the sale and shipment of Jereh Group equipment through the UAE to end-users in Iran.

Nine of the 11 transactions constituting the apparent violations occurred in or after January 2015, more than four months after BIS officials began communicating with the Jereh Group regarding U.S. economic and trade sanctions against Iran. Although the Chairman of the Jereh Group appears to have issued instructions to several employees and business units to cooperate with the U.S. Government's inquiries, the former Sales Executive falsely denied having engaged in any business dealings with Iran. The apparent violations did not cease until BIS added several Jereh Group companies and related individuals to its Entity List on March 21, 2016.

An external review in late 2015 and early 2016 found that Jereh Group's compliance controls were largely non-existent and, when in place, were ineffective and easily circumvented. Although the company had changed its contracts in or around June 2011 to include an explicit provision prohibiting the reexportation of Jereh Group products to countries subject to U.S. economic sanctions, the contracts signed with the aforementioned intermediary companies excluded this language.

OFAC determined that Jereh Group did not voluntarily disclose the apparent violations, and that the apparent violations constitute an egregious case. The base civil monetary penalty amount equaled the statutory maximum civil monetary penalty amount, which in this case totaled $3,083,302. The $2,774,972 settlement amount reflects OFAC's consideration of the General Factors under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A.

Jereh Group's settlement with OFAC is concurrent with a settlement agreement between the Jereh Group and the U.S. Department of Commerce's Bureau of Industry and Security (BIS). The apparent violations did not cease until BIS added several Jereh Group companies and related individuals to its Entity List on March 21, 2016.

This enforcement action highlights the importance of the implementation of audits, reviews, and control measures to ensure compliance with U.S. export controls and sanctions regulations. OFAC encourages companies to develop risk-based compliance programs that include control mechanisms to prevent violations of U.S. export controls and sanctions regulations.

The case illustrates a specific risk from multi-party intermediary arrangements: even where a company adopts contract language prohibiting reexportation to sanctioned countries, that provision must flow through to all contracts with intermediary companies. Jereh Group had included such a prohibition in its standard contracts since 2011, but the contracts executed with JNTBL and DGT excluded this language. An external review also found the company's compliance controls were largely non-existent and, when in place, were ineffective and easily circumvented.

Among the remedial measures Jereh Group undertook were: terminating employees directly responsible for the shipments; engaging an external organization to conduct an internal review and develop a trade and sanctions compliance program and provide detailed technical training to employees and senior executives; establishing an International Business Compliance Department and a Compliance Committee with cross-functional representation from legal, sales, procurement, logistics, engineering, and finance; hiring full-time compliance personnel including a dedicated Chief Legal Officer and Deputy Director of Compliance; and proactively issuing sanctions compliance certifications to suppliers requiring them not to sell, transfer, reexport, or divert any Jereh Group products to sanctioned countries.

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