When you are hot, you are hot. (And when you are not, you are not; Thank you Jerry Reed, Country Singer). OFAC is hot and resumed its enforcement streak, settling three enforcement actions in three weeks.
The latest settlement involved Whitford Worldwide Company (Whitford”), a cookware manufacturer based in Pennsylvania, which agreed to pay $824,314 for violations of the Iran Sanctions. Whitford’s liability stemmed from its foreign subsidiaries illegal sales of coatings to Iran. In addition, Whitford’s US-person employees was aware of and provided instructions for some of these sales.
Between November 2012 and December 2015, Whitford engaged in 74 transactions when (a) Whitford’s foreign subsidiaries exported goods to Iran and completed transactions with persons in Iran; and (b) US-person employees of Whitford facilitated the Iran business.
Whitford’s subsidiaries and Italy historically sold coatings to Iran. In 2012, OFAC expanded its Iran Sanctions program to include U.S. controlled foreign entities from engaging in transactions with Iran. Notwithstanding this change, Whitford’s Italy and Turkey subsidiaries continued to seel coatings to Iran.
In 2013, Whitford’s Regulatory Affairs Manager (who did not specialize in sanctions compliance) incorrectly concluded that Whitford’s foreign subsidiaries could legally continue to sell to Iran so long as Whitford’s subsidiaries did not deal directly with Iran. In accordance with this advice, Whitford’s managing director for Europe set up third-party distributors and documentation that did not specifically reference Iran. From 2014 to 2015, Whitford and its Ital and Turkey subsidiaries violated the Iran sanctions and made payments to and received payments from their Iran sales agent and facilitated prohibited transactions.
In January 2016. Whitford questioned its initial legal analysis after OFAC issued Iran General License H and realized that its foreign subsidiaries’ transactions prior to issuance of Iran General License H may have been, in fact, illegal. Whitford hired outside counsel to investigate the matter, submitted a voluntary disclosure, substantially cooperated with OFAC’s investigation, and took significant corrective actions.
The Whitford case is yet another example in which a US-based company with foreign operations have to ensure compliance with sanctions, especially the Iran Sanctions. Further, Whitford’s initial legal determination failed to understand the reach of the Iran Sanctions and application to foreign owned or controlled subsidiaries. Companies have to ensure that they employ personnel with adequate knowledge and understanding of OFAC sanctions requirements.
Further, the Whitford case reflects the importance of designing, implementing and updating an effective sanctions compliance program. As part of this program, a sanctions compliance program has to be updated to reflect changes to sanctions regulations and understanding the full scope of sanctions prohibitions. To ensure such compliance, global companies have to dedicate sufficient resources to ensure effective compliance.
Whitford was credited with a voluntary disclosure, substantial cooperation and comprehensive remediation. The base settlement amount was approximately $1.5 million and Whitford earned around a 50 percent reduction.
Whitford’s remedial measures included: (i) appointment of an external compliance monitor. Responsible for auditing Whitford’s compliancfe with US sanctions, who reports directly to Whitford’s Board of Directors; (ii) appointment of an internal compliance monitor responsible for implementing recommendations from the external compliance monitor; (iii) requiring the CEO (the former Managing Director for Europe who participated in the plan to continue selling goods to Iran) to resign from the Board of Directors and appointing a new, independent director; (iv) establishing annual and quarterly reporting requirements for sanctions compliance, including certifications by Managing Directors at each subsidiary, the CEO, the internal compliance monitor, external compliance monitor and the general counsel; (v) adopting a code of conduct that applies to Whitford and its subsidiaries; (vi) adopting a new, global sanctions and exports controls compliance policy; and (vii) providing export controls and sanctions compliance training.