ZAG IP, LLC OFAC Settlement: $506.2K (2019)

ZAG's business during the relevant period focused on global sourcing and marketing of cement raw materials and providing strategic advisory services related to raw material selection for companies in the construction industry. On April 11, 2014, ZAG signed a supply contract with a company based in Tanzania (the "Purchaser") and agreed to supply approximately 400,000 metric tons of cement clinker manufactured by a company based in India (the "Supplier"). Under the terms of the contract, ZAG was required to supply the Purchaser with a minimum of three shipments in 2014 and a minimum of five shipments in 2015, approximately 50,000 metric tons per shipment.

On or about June 26, 2014, the Supplier notified ZAG's Managing Director of the Asia Pacific, Middle East, and East Africa Regions ("ZAG Managing Director") that, due to a technical problem at its production plant, it would not have sufficient cement clinker to load onto ZAG's vessel on or about July 5, 2014. ZAG attempted to reschedule the date of its first shipment to the Purchaser but was unable to do so after the Purchaser objected to any delays and threatened to cancel the entire contract. The ZAG Managing Director subsequently identified a business contact and trading company located in the United Arab Emirates (the "Alternative Supplier") capable of providing alternative Iranian-origin cement clinker. Relying on the Alternative Supplier's misrepresentation that the cement clinker was not subject to U.S. economic sanctions on Iran, ZAG purchased the alternative cement clinker from the Alternative Supplier despite its knowledge that the goods were produced by an Iranian manufacturer and shipped from a port in Iran. Through five separate transactions between on or about July 11, 2014 and on or about January 15, 2015, ZAG purchased a total of 263,563 metric tons of Iranian-origin clinker from the Alternative Supplier and resold and transported it to the Purchaser, with an aggregate transaction value of $14,495,961.

OFAC determined that ZAG voluntarily self-disclosed the apparent violations, and that the apparent violations constitute a non-egregious case. The statutory maximum civil monetary penalty amount for the apparent violations was $28,991,922, and the base civil monetary penalty amount was $625,000. The settlement amount of $506,250 reflects OFAC's consideration of the general factors under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A.

This case demonstrates the importance for companies operating in high-risk industries (e.g., international trading) to implement risk-based compliance measures, especially when engaging in transactions involving exposure to jurisdictions or persons implicated by U.S. sanctions. It is essential that companies engaging in international transactions consider and respond to sanctions-related warning signs, such as information that goods originating from, being loaded or unloaded at ports located in, or trans-shipping through, countries or regions subject to comprehensive U.S. economic and trade sanctions.

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