OFAC Fines Hong Kong Company $5.2M After Employees Hid Iranian-Related Transactions
The Office of Foreign Assets Control this week fined a Hong Kong company more than $5.2 million after it illegally bought more than 64,000 tons of Iranian thermoplastic, the largest fine by OFAC in more than a year. The agency said Sojitz illegally bought the Iranian “high density polyethylene resin” from a Thai supplier to sell to Chinese consumers. OFAC determined the case to be non-egregious, partly because senior compliance officials weren’t aware of the illegal purchases and had repeatedly told its employees that they could not buy Iranian goods with U.S. dollars.
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The violations stemmed from several “noncompliant employees” who disobeyed company policies to buy the polyethylene resin, OFAC said. Between 2016 and 2018, the employees secured a purchase agreement with a Thai supplier in which Sojitz paid the purchase price by wire transfer to the supplier after it shipped the products to Chinese buyers. OFAC said Sojitz made the wire transfers through 60 U.S. dollar payments, transferring about $75,000 through multiple U.S. “financial institutions,” including U.S. correspondent banks.
The Sojitz employees omitted references to Iran in their “funds transfer instructions,” OFAC said, which didn’t allow the U.S. banks to catch the violations. The employees also asked the Thai supplier to avoid referencing Iran on the bills of lading and told Sojitz’s senior management and compliance officials that the Thai supplier produced polyethylene resin. OFAC said the employees directly disobeyed the company’s compliance procedures because they were “explicitly and repeatedly advised” by Sojitz compliance officials that “they could not make U.S. dollar payments in connection with Iran-related business transactions.”
Although the case was non-egregious because the violations were voluntarily self-disclosed and Sojitz senior management wasn’t “aware” of the violations, OFAC still handed the company the largest U.S. sanctions fine since Jan. 4, 2021. In that case, OFAC fined a French bank more than $8.5 million for violating sanctions against Syria (see 2101040055). The maximum civil monetary fine OFAC could have imposed for Sojitz’s violations was about $151 million.
OFAC pointed to several aggravating factors that contributed to the $5.2 million fine, including that Sojitz employees left out Iranian country of origin information from “all relevant transactional documents” for two years. The agency also said one of the employees held a “mid-level managerial position,” and all employees were told the transactions would violate U.S. sanctions. Other aggravating factors included that the transactions likely "conferred significant economic benefits” to Iran, OFAC said, and that Sojitz is a “sophisticated offshore trading and cross-border trade financing company” with compliance experience and expertise.
OFAC also pointed to several mitigating factors, including Sojitz’s compliance team at its parent company in Japan, which instructed the employees that they couldn’t conduct U.S. dollar transactions with Iran. The agency also said Sojitz’s senior managers weren’t aware of the transactions, the company had no prior OFAC sanctions history and it cooperated with OFAC’s investigation.
The company also “undertook significant remedial measures,” OFAC said, including a “thorough internal look-back investigation” to find the root causes of the compliance failures. Sojitz also fired the employees who caused and hid the violations, bolstered its sanctions screening procedures and hired more compliance employees. Sojitz didn't immediately respond to a request for comment.
The case highlights that violations by a few employees could lead to liability for an entire company, OFAC said. “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,” the agency said. “In such cases, their actions can result in violations attributable to their organizations.” OFAC said companies should continuously test and audit their compliance programs, especially so parent companies can “ensure that appropriate compliance programs and procedures are implemented at their overseas subsidiaries.”