U.S. Dental Supply Company Penalized for Violating Iran Sanctions

Bass, Berry & Sims PLC

Bass, Berry & Sims PLC

  • 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.

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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