OFAC Settles with Hong Kong Trading Company for $5.2 Million for Violations of Iran Sanctions Program

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The Volkov Law Group

OFAC is off to a quick start in 2022.  After announcing its Airbnb enforcement action in the beginning of January, OFAC announced a settlement with Sojitz (Hong Kong) Limited, a Hong Kong, China-based company that engages in offshore trading and cross-border trade financing, for $5,228,298 for violations of the Iran Sanctions Program.

Sojitz HK violated the Iran Sanctions Program by making U.S. dollar payments through U.S. financial institutions for Iranian-origin high density polyethylene resin (HDPE) from its bank in Hong Kong to the HDPE supplier’s banks in Thailand.  By doing so, Sojitz HK caused the financial institutions that processed the funds to engage in prohibited financial transactions related to Iranian-origin goods.

Sojitz HK voluntarily disclosed the violations.

Between August 2016 and May 2018, Sojitz HK employees acted contrary to Sojitz HK’s policies and procedures to cause Sojitz HK to purchase 64,000 tons of Iranian-origin HDPE from a supplier in Thailand for resale to buyers.  Sojitz HK paid for the purchase by wire transfer to the Thai supplier upon the shipper’s confirmation of shipment to the Chinese buyers.

Sojitz HK made 60 separate U.S. dollar payments from its Hong Kong bank to the Thai supplier’s banks, totaling over $75 million.  Each U.S. dollar payment was processed and settled through multiple U.S. financial institutions, including private correspondent banks associated with the Hong Kong and Thai banks.

The Sojitz HK noncompliant employees omitted all references to Iran from the funds transfer instructions.  Immediately prior to the HDPE trading, the Sojitz HK non-compliant employees were specifically advised on several occasions that they could not make U.S. dollar payments in Iran-related business transactions.  Thereafter, the noncompliant employees omitted HDPE’s Iranian country of origin information from relevant transaction documents.  In particular, the noncompliant employees made no reference to Iran on the bills of lading.

Additionally, during Sojitz HK’s internal business approval processes, the noncompliant employees mislead supervisors and compliance personnel by representing that the HDPE originated from a supplier in Thailand.

Sojitz HK and its parent company, Sojitz Corporation, implemented significant remedial measures: (1) termination of the noncompliant employees who engaged in the HDPE trading misconduct; (2) enhancement of screening procedures to require screening of all counter-parties; and (3) placement of trading compliance unit in legal department and hiring of additional personnel.

OFAC stressed that the Sojitz HK case demonstrated the importance of effective risk based internal controls to identify, interdict, escalate and prevent potential violations of OFAC sanctions. In particular, OFAC recognized that the “case also highlights the risks and potential costs that non-U.S. companies are exposed to when the U.S. financial system is used for transactions that may involve sanctioned persons or jurisdictions.” To prevent such misconduct, OFAC noted that companies should conduct robust risk assessments to identify activities that pose significant sanctions risks and implement tailored risk-based procedures. 

OFAC emphasized that the case underscored the importance for parent companies to ensure that appropriate compliance programs and procedures are implemented at their overseas subsidiaries and to exercise appropriate oversight over activities that may pose sanctions risks.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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