Key Points:

• Long-arm of U.S. sanctions jurisdiction reaches conduct by European company.
• Violation involved shipment to Iran from Australia, a close U.S. ally.

On December 3, the Treasury Department’s Office of Foreign Assets Control (OFAC) announced that Aiotec GmbH, a German supplier of industrial equipment for the energy sector, agreed to pay $14,550,000 to settle its potential civil liability for violating the Iranian Transactions and Sanctions Regulations (ITSR). The settlement agreement can be found here. The press release can be found here.

Overview of the Violations

According to OFAC, Aiotec contracted with an (unnamed) U.S. broker to purchase and dismantle a decommissioned polypropylene plant in Australia. On multiple occasions, Aiotec represented to the U.S. company that the plant would be set up in Turkey and run as a joint venture with a Turkish company. Instead, the parts of the plant were sent to Iran.

The U.S. company repeatedly reminded Aiotec of its obligations under U.S. law, including as stated in the purchase agreement, to comply with U.S. sanctions. At one point, after receiving an anonymous tip indicating that Aiotec had entered into an agreement with an Iranian petrochemical development company to divert the plant parts, the U.S. company suspended Aiotec’s access to the plant, which was still being dismantled. However, working with its purported Turkish joint venture partner, Aiotec used falsified bills of lading, declarations, and other documents to reassure the U.S. company and access to the plant was restored.

Jurisdictional Basis for OFAC Enforcement

Although Aiotec is a non-U.S. company, OFAC established jurisdiction over this matter on two bases. First, Aiotec “cause[d] a U.S. company to indirectly sell and supply an Australian polypropylene plant to Iran.” Second, Aiotec made a total of 11 payments to the U.S. company’s U.S. bank, including two payments to the London branch of that bank. OFAC concluded that these actions were in direct violation of the ITSR.  

Factors Influencing the Settlement Amount

The statutory maximum civil penalty was approximately $20 million, but OFAC was willing to provide a discount off this maximum based on Aiotec’s lack of prior misconduct, cooperation in the investigation, and agreement to invest substantial resources in remedial measures to implement compliance commitments. At the same time, OFAC primarily highlighted aggravating factors including the willful nature of the violations, the involvement of senior management, and the substantial harm to sanctions objectives.

Compliance Commitments in the Settlement Agreement

As part of the settlement, Aiotec agreed to specific compliance commitments, including conducting a sanctions risk assessment and more generally implementing improved internal controls, including employing testing and auditing procedures.

Lessons for International Businesses

Long-arm U.S. sanctions jurisdiction is often the basis for sanctions penalties, as we have written about previously in our April 2024 Enforcement Update and a March 2024 blog post. Any international transaction that touches U.S. commerce or in which a U.S. person is involved is likely subject to U.S. sanctions. Particularly when Iran is involved, OFAC will likely pursue enforcement aggressively. It is thus critical to conduct robust compliance due diligence on transaction partners and monitor those partners and the transaction itself during its lifetime.

To that end, there is no indication that OFAC intends to pursue any penalty against the U.S. company involved in this matter. That is almost certainly the result of the compliance steps and monitoring that the U.S. company engaged in, even though it appears the company became aware of a compliance red flag and suspended the transaction before subsequently resuming it.

When conducting international business, it is almost impossible to avoid all violations of U.S. sanctions (and export controls). The best protection against a violation and liability, if a violation does occur, is a fulsome record of the compliance measures taken to identify potential violations. It appears the U.S. company had such a record and correspondingly OFAC seemingly is not pursuing enforcement action against the company.

If you have any questions about how this settlement may impact your business or compliance practices, please contact the author.