There is always a lot made of U.S. companies being subjected to liability for sanctions violations for the actions of their foreign subsidiaries. One fairly common occurrence that does not get as much attention, however, is that of foreign companies being subjected to liability for sanctions violations as a result of the activities of their U.S. subsidiaries. A prime example of this occurred last Friday, when the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced a settlement with KMT Group AB (“KMT Group”), of Stockholm, Sweden, who agreed to pay $125,000 on behalf of its subsidiaries, KMT Aqua-Dyne, Inc. (“KMT AD”) and KMT GmbH, for violations of the Iranian Transactions and Sanctions Regulations (the “ITSR”).

The violations occurred when KMT GmbH attempted to export nine (9) pumps from the United States to Iran, and exported, reexported, sold, or supplied the pumps from the United States to Hamburg, Germany, with knowledge or reason to know that the goods were intended specifically for reexportation to South Pars Industrial Gas Complex in Tehran, Iran. The exports were seized by U.S. Department of Homeland Security’s Customs and Border Protection (“CBP”) upon redelivery from Europe to the United States. The settlement amount took into consideration the fact that KMT GmbH failed to disclose to KMT AD that the end destination and end-user of the goods were in Iran, that there was no actual sanctions harm since the goods were not reexported to Iran, and the nine pumps were seized by CBP and KMT GmbH has already forfeited two of the pumps and $579,026. OFAC has indicated that the KMT Group entities took remedial measures to resolve issues related to the apparent violations and prevent future violations.

And it’s the remedial steps taken which is really the important issue here. Many U.S. companies have thorough OFAC compliance procedures in place to ensure that their foreign subsidiaries do not violate U.S. sanctions, and/or that they themselves do not facilitate foreign partners or affiliates from violating U.S. sanctions. However, in my practice, I have found that many foreign companies with U.S. subsidiaries have not established adequate procedures and processes to comply with OFAC regulations. This is for a variety of reasons, such as not wanting to take on the expense, reliance on anti-boycotting laws in their home jurisdictions, etc. Interestingly, it’s these foreign businesses which may have the greater need for OFAC compliance programs than U.S. companies. Because they may be operating out of jurisdictions which still allow for a large number of transactions with Iran, they could be more at risk for violating OFAC sanctions, through their involving their U.S. subsidiaries in some manner, by either relianing on U.S. origin manufacturing, or shared services, for example. Perhaps this settlement announcement will wake up some of those foreign companies that, due to the reach OFAC believes they can assert, may face liability. In short, OFAC compliance just isn’t for U.S. companies anymore.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com.