Zoltek Companies, Inc. OFAC Settlement: $7.8M (2018)

Zoltek U.S. appears to have violated § 548.201 of the BSR by dealing in the blocked property or interests in property of J.S.C. Naftan ("Naftan"), a Belarusian entity OFAC designated on August 11, 2011 pursuant to Executive Order 13405 and identified on OFAC's List of Specially Designated Nationals and Blocked Persons. Between January 18, 2012 and October 27, 2015, Zoltek U.S. appears to have approved 26 purchases of acrylonitrile ("ACN"), a chemical used in the production of carbon fiber, between Zoltek ZRT (Zoltek's Hungarian subsidiary) and Naftan. Purchase decisions made by Zoltek ZRT were reviewed and approved by senior-level executives of Zoltek U.S., specifically including the CEO or, beginning in or around June 2014, the Executive Vice President for Production and Technology (EVPPT); the COO and/or CFO were often consulted and participated in the review process.

On or around August 16, 2011, approximately five days after OFAC's designation of Naftan, a Zoltek ZRT employee notified the COO of Zoltek U.S. about the designation and questioned whether it posed any issues for Zoltek ZRT's continued purchase and acquisition of ACN from Naftan. Notwithstanding those concerns, Zoltek U.S. continued to review and approve transactions dealing in Naftan's blocked property.

Beginning no later than February 2015, multiple Zoltek U.S. employees, including the CEO, COO, and President; the CFO; the EVPPT; and the Director of Global Operations, engaged in multiple conversations regarding the economic sanctions imposed against Naftan. These conversations included input from third-party companies confirming that Zoltek ZRT's trading partner, OJSC Polymir in Belarus, was a subsidiary of Naftan, and that Naftan was on the SDN List and subject to U.S. economic and trade sanctions administered and enforced by OFAC. Despite multiple senior managers within Zoltek U.S. and Zoltek ZRT having actual knowledge of Naftan's status as an OFAC-sanctioned party, Zoltek U.S. continued to review and approve Zoltek ZRT's transactions involving Naftan.

OFAC determined that Zoltek and Zoltek U.S. voluntarily self-disclosed the apparent violations to OFAC, and that the apparent violations that occurred prior to February 2015 constitute a non-egregious case. OFAC determined that the apparent violations that occurred after February 2015, during which multiple senior managers in Zoltek U.S. engaged in conversations about, and demonstrated actual knowledge of, Naftan's status as an OFAC-sanctioned person identified on the SDN List, constitute an egregious case.

The statutory maximum civil monetary penalty amount for the apparent violations was $37,824,392, and the base civil monetary penalty amount for the apparent violations was $11,957,081. The base civil monetary penalty amount for the non-egregious transactions totaled $1,513,535, and the base civil monetary penalty amount for the egregious transactions totaled $10,443,546. The settlement amount of $7,772,102 reflects OFAC's consideration of the facts and circumstances pursuant to the General Factors under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A.

This enforcement action highlights the risks for companies with overseas operations that do not implement OFAC compliance programs or that implement compliance programs that fail to address the sanctions regulations administered by OFAC. Effective sanctions compliance programs have policies, procedures, and controls designed to identify prospective and in-process transactions, as well as customers and counter-parties, for potential OFAC issues, as well as mechanisms designed to adequately respond to warning signs and raise sanctions-related issues to a sanctions compliance officer or point-of-contact. Additionally, this case highlights the need for U.S. parent companies to take care to segregate certain business operations of their overseas subsidiaries so that the U.S. parent and its employees do not violate U.S. sanctions regulations by facilitating the actions of its subsidiaries.

This page summarizes an OFAC enforcement case based on the document archived below. SanctionsLookup assumes no liability for errors, omissions, or inaccuracies in the original documents, this summary, or any changes made to the source documents at any time.

Provided for informational purposes only and does not constitute legal or compliance advice. Always consult the source document directly rather than relying on this summary.