On February 7, 2019, OFAC fined a Virginia-based company, Kollmorgen Corporation, for business that its recently-acquired Turkish subsidiary allegedly conducted in Iran after determining that Kollmorgen had undertaken “extensive preventative and remedial conduct” both before and after the acquisition in an effort to ensure the subsidiary complied with US sanctions. OFAC also found that Kollmorgen had “conduct[ed] an effective and extensive internal investigation and submit[ed] a comprehensive voluntary self-disclosure to OFAC.” Why, then, would OFAC fine this company, if it sounds like they did everything right? The answer is strict liability. OFAC’s civil enforcement authority applies on a strict liability basis, meaning if the prohibited conduct occurs, the agency can impose civil penalties, even if there is no negligence, intent, or other finding of fault. Attorneys often advise their clients that as a technical matter OFAC penalties can apply even if the company does everything that’s feasible to comply with the law, underscoring the potential risk in dealing with sanctioned countries or sanctioned parties. But OFAC frequently declines to penalize companies under such circumstances, and instead often closes out such cases with a “warning letter”. While the amount of the fine here was very small ($13,381, quite a downward departure from the statutory maximum of $1,500,000) due to the mitigating conduct of the US parent, other costs of the enforcement process and a finding of violation can still be significant.
The individual at the foreign subsidiary who was found to be culpable for this conduct was added to OFAC’s Foreign Sanctions Evaders (FSE) list under Executive Order 13608, which imposes a broad restriction similar to the Specially Designated Nationals (SDN) list. This is an interesting approach to sanction an individual employee of a foreign subsidiary of a US company while providing a high degree of leniency to the cooperating US company. Very likely Kollmorgen provided significant information about this individual’s conduct to OFAC as part of its voluntary disclosure. OFAC provided some detail about the individual’s role in “directing” the Iran-related violations and attempting to “conceal” that activity, with a senior Treasury official remarking “This action is a clear warning that anyone in supervisory or managerial positions who directs staff to provide services, falsify records, commit fraud, or obstruct an investigation into sanctions violations exposes themselves to serious personal risk.” OFAC remarked that this coupling of an FSE designation with a civil enforcement action was “unprecedented.” Continue Reading