Since the start of September, the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) has settled with two different companies for alleged violations of U.S. economic sanctions on Iran. The settlements, the first with World Class Technology Corporation (WCT) and the second with PanAmerican Seed Company (PanAmerican), yielded vastly different outcomes.  As summarized below, we think the divergent results serve to illustrate how OFAC weighs various factors in calculating penalty amounts.

WCT.  On September 7, 2016, OFAC settled with WCT for $43,200 based on alleged violations of the Iranian Transactions and Sanctions Regulations (ITSR).  The alleged violations occurred when WCT exported seven shipments of orthodontic devices to Germany, Lebanon and the United Arab Emirates with suspicion that the devices would be exported to Iran.  The devices were collectively valued at almost $60,000.  The exports occurred between April 2008 and July 2010.

In announcing the penalty, OFAC emphasized that WCT did not voluntarily self-disclose the alleged violations, had committed the violations willfully, and did not have a compliance program in place until 2008. OFAC also alleged that management had actual or constructive knowledge that the products were to be exported to Iran.  OFAC deemed all of these factors to be aggravating in accordance with the agency’s Enforcement Guidelines.

At the same time, OFAC concluded that the alleged violations were not egregious (in accordance with the Enforcement Guidelines) in light of the following mitigating factors:

• If WCT had applied for a license, OFAC likely would have granted one;
• WCT had no history of sanctions violations in the five years preceding the date of the first transaction;
• WCT cooperated with OFAC by agreeing to toll the statute of limitations; and
• WCT implemented a sanctions compliance procedure in June 2008 and drafted a written compliance policy (well done by WCT to turn a weakness into a positive by remediating in the midst of the violations).

OFAC also noted that WCT – apparently a small, private company – lacked commercial sophistication with respect to international sales at the time of the alleged violations. While OFAC’s penalty determination apparently reflected the company’s size and relative lack of sophistication, it did not excuse it.

PanAmerican.  Less than a week later, on September 13, 2016, OFAC announced its settlement with PanAmerican, also for alleged violations of the ITSR, this time for $4,320,000.

In this case, the violations involved 48 exports of flower and other seeds, to Iranian distributors between 2009 and 2012. According to OFAC, the exports resulted in a $770,000 economic benefit to Iran.

Like WCT, PanAmerican did not voluntarily self-disclose the alleged violations and committed the violations willfully and with management’s knowledge. PanAmerican also apparently did not have a compliance program in place at the time of the violations.

Moreover, like WCT, PanAmerican cooperated with OFAC by agreeing to toll the statute of limitations (for a mere 882 days!), had not been subject to an OFAC enforcement action for the five years preceding the alleged violations, likely would have received an OFAC license for the exports had one been sought, and took remedial actions including implementation of a sanctions compliance program. In fact, PanAmerican also took the additional remedial step of training employees on U.S. sanctions compliance.  (WCT may also have trained employees but, if so, OFAC did not mention it when announcing the penalty against WCT.)

Analysis. So, what gives?  In light of the significant similarities between these two cases, why was PanAmerican’s penalty 100 times that of WCT?

The answer appears to come down to several main factors: the number and duration of the alleged violations, as well as PanAmerican’s alleged recklessness, failure to cooperate fully, and commercial sophistication. Whereas WCT exported only seven shipments over the course of two years, the alleged violations by PanAmerican involved 48 shipments over approximately three years.  Moreover, OFAC alleged that PanAmerican continued to sell its products into Iran despite warnings that the sales could violate U.S. sanctions and for nearly eight months after its Director of Finance learned of OFAC’s investigation.  In addition, according to OFAC, PanAmerican initially failed to cooperate with the investigation – and provided OFAC with inaccurate, misleading and incomplete information.

OFAC apparently expected more of the company, which the agency pointed out is a division of Ball Horticultural – a commercially sophisticated international organization.

Lessons Learned. First off, it is important to dedicate resources to compliance: it is somewhat surprising that a company actively involved in international transactions apparently lacked a sanctions compliance program.  In addition, had PanAmerican promptly halted the problematic conduct after becoming aware of it, and taken targeted remedial actions, the fine could have been substantially lower.

Another important takeaway is the value of cooperation. If the agency is digging around, it is likely to uncover violations that have occurred.  One way to mitigate those past mistakes is to cooperate with the government and show how seriously the company takes the matter, including the need to protect against similar violations in the future.  By contrast, failing to cooperate, and erecting roadblocks to OFAC’s review by providing the agency with inaccurate or misleading information, is a surefire way to incur higher penalties.

Lastly, we think it notable that, in both of these actions, settlement was not reached until long after the violations occurred. In theory, matters such as these, involving an apparently finite number of products and shipments, could be resolved quite quickly.  Yet as evidenced by this and other recent settlements, OFAC has been taking several years or more to resolve even relatively straightforward cases.

One final thought: it is interesting to consider how OFAC might have learned about WCT’s and PanAmerican’s conduct, since neither company self-reported the violations. Perhaps a spurned competitor or a disgruntled former employee reported the transactions to OFAC.  Regardless, these enforcement actions demonstrate OFAC’s continuing efforts to root out sanctions violations, even when involving exports of relatively non-sensitive items that, as OFAC itself stated, would likely have been licensed if only applications had been filed.