• Many medical products can be exported to Iran – so long as a license is obtained
  • Imposition of successor liability underscores importance of pre-transaction due diligence
  • OFAC enforcement, as in the past, continues to take a long time

In December 2017, the U.S. Office of Foreign Assets Control (OFAC) announced a penalty of $1.2 million against DENTSPLY SIRONA Inc. (DSI), one of the world’s largest manufacturers of dental products, for violating U.S. sanctions on Iran.  DSI, which is publicly traded in the United States, is based in York, Pennsylvania, and maintains operations around the world.

According to OFAC, the violations occurred between November 2009 and July 2012, and involved two subsidiaries of DENTSPLY International Inc. (DII).  (DII and Sirona Dental Systems, Inc. merged in 2016, creating DSI.)  OFAC asserted that two DII subsidiaries made 37 shipments of dental supplies from the United States to distributors in third countries with actual or constructive knowledge that the supplies were destined for Iran.  OFAC also asserted that certain of the subsidiaries’ managers concealed the violations from DII.

In calculating the penalty in this matter, OFAC considered as an aggravating factor the fact that DII did not voluntarily disclose the violations to OFAC.  The agency also viewed as an aggravating factor DII’s status as a large, commercially sophisticated company with knowledge of U.S. export and sanctions regulations.

However, OFAC also identified a number of mitigating factors, including that DSI:

  1. Took remedial steps, including an expansive company-wide inquiry that led to the discovery of additional facts related to the matter; and
  2. Cooperated with OFAC’s investigation, including agreeing to toll the statute of limitations for 1,104 days.

In addition, OFAC noted that the exported products – dental supplies – would likely have been eligible for a specific license to Iran.  (As many readers know, OFAC will often issue licenses for exports to Iran of medical devices and products in conformance with the Trade Sanctions and Reform Act.)

Lessons Learned

The case thus serves as a useful reminder that most medical devices, including dental supplies, can be exported to Iran, but only with a specific license.  Had DII or its subsidiaries taken the time to apply for a license from OFAC, they likely would have been spared this substantial penalty and the significant amount of time needed to resolve the matter.  As we have discussed previously (see here and here), and as this case illustrates yet again, OFAC enforcement actions tend to take a long time: according to OFAC, the violations ended in 2012 but the enforcement matter was not resolved until 2017.

It is also interesting to consider whether Sirona Dental Systems, Inc., when merging with DII, became aware of these issues during pre-deal due diligence.  Regardless, this matter underscores the importance, when merging with or acquiring a company that conducts business internationally, of a careful pre-transaction review that includes specific analysis of sanctions and export compliance.

Subscribe to our Government Contracts & International Trade blog for timely updates on U.S. sanctions matters, or feel free to contact the authors for more information.

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Photo of Thad McBride Thad McBride

Thad McBride advises public and private companies on the legal considerations essential to successful business operations in a global marketplace. He focuses his practice on counseling clients on compliance with U.S. export regulations (ITAR and EAR), economic sanctions and embargoes, import controls (CBP)…

Thad McBride advises public and private companies on the legal considerations essential to successful business operations in a global marketplace. He focuses his practice on counseling clients on compliance with U.S. export regulations (ITAR and EAR), economic sanctions and embargoes, import controls (CBP), and the Foreign Corrupt Practices Act (FCPA). He also advises clients on anti-boycott controls, and assists companies with matters involving the Committee on Foreign Investment in the United States (CFIUS). Thad supports international companies across a range of industries, including aviation, automotive, defense, energy, financial services, manufacturing, medical devices, oilfield services, professional services, research and development, retail, and technology. Beyond advising on day-to-day compliance matters, Thad regularly assists clients in investigations and enforcement actions brought by government agencies, including the U.S. Department of Justice (DOJ), the U.S. Treasury Department Office of Foreign Assets Control (OFAC), the U.S. State Department Directorate of Defense Trade Controls (DDTC), Customs and Border Protection (CBP), the U.S. Commerce Department Bureau of Industry & Security (BIS), and the Securities & Exchange Commission.

Photo of Sylvia Yi Sylvia Yi

Sylvia Yi represents businesses across a broad range of sectors as they move through the contracting process with federal, state and local governments, and when they engage in international transactions. Sylvia counsels public and private companies on day to day compliance challenges, and…

Sylvia Yi represents businesses across a broad range of sectors as they move through the contracting process with federal, state and local governments, and when they engage in international transactions. Sylvia counsels public and private companies on day to day compliance challenges, and supports clients in responding to criminal and government investigations. She is a regular contributor to the firm’s Government Contracts & International Trade Blog, where she provides insight on the demanding and ever-changing regulatory environment.