US Skincare Company, Former Official Settles With OFAC Over Sanctions Violations
The Office of Foreign Assets Control reached a $3.3 million settlement this week with a California-based skincare company and a $175,000 settlement with its former unnamed senior executive for illegal exports to Iran in violation of U.S. sanctions. Murad, owned by multinational company Unilever, worked with distributors in Iran and the United Arab Emirates to ship goods to Iran, leading to at least 62 exports worth more than $11 million, OFAC said.
The agency said Murad didn’t have a sanctions compliance program, adding its compliance resources were mostly centered on product safety. Although it was later acquired by Unilever, which had sanctions compliance procedures in place, those were “inadequate in relation to the sanctions risks” Murad faced, OFAC said. It also said Unilever's headquarters in the U.K. “lacked an adequate understanding of OFAC sanctions.”
The violations stemmed from a distribution agreement between Murad and the Iranian distributor in 2009. OFAC said Murad’s former executive signed the agreement and caused the company to begin exporting its products to Iran “despite having applied for but never receiving a specific license or other applicable guidance from OFAC.” None of Murad’s exports were eligible for a general license or exempt from sanctions licensing requirements, the agency said.
About six years later, the Murad executive, in partnership with the Iranian company’s CEO, signed a new distribution agreement with a UAE company to become its “sole distributor in the Middle East.” This agreement didn’t “specify Iran as a territory serviced” by the UAE distributor, OFAC said, but Murad’s executive “should have understood that the UAE Distributor would export the Company’s products to Iran, which it subsequently continued to do.”
Unilever bought Murad in 2015, a few months after Murad signed the second distribution agreement, OFAC said. During the acquisition process, Murad continued to send products to Iran without OFAC licenses, and the executive was “responsible for at least three of these transactions,” the agency said. Murad also “provided support” for the UAE distributor to open an independent “company-branded store” in Tehran.
Murad never disclosed its Iran sales to Unilever, OFAC said, and Unilever didn’t discover the violations during its pre-acquisition due diligence. Unilever also failed to discover an Iranian website with the name “Murad.ir,” which had Murad’s products for sale and was active for more than three years after the Unilever acquisition.
Unilever discovered Murad’s Iran business two months after it closed the purchase when one of Unilever’s U.S. employees was forwarded an email from the UAE distributor’s CEO “explaining the time it took for” Murad’s products to reach Tehran from California, OFAC said. The next day, Unilever’s corporate counsel directed the Murad executive to tell the UAE distributor to “cease all exports” to Iran, the agency said. The Murad official “followed these instructions” but first “alerted” another senior Murad official “of the need to ensure that the UAE Distributor’s CEO would not suggest that any” Murad executives approved the export of Murad’s products to Iran.
Despite being told that the UAE company couldn’t send the goods to Iran, Murad’s executive and others continued exporting goods to the UAE company for sale in Iran, OFAC said. The company eventually “placed an internal hold” on all orders from the UAE distributor, ending an eight-year “conspiracy.”
OFAC said the maximum civil penalty it could have imposed was more than $22 million, but it settled on a lesser amount because Murad voluntarily disclosed the violations. Even so, the agency said the violations constituted an “egregious case,” pointing to the company’s willful violations of U.S. sanctions and senior executives' “actual knowledge” of distributor agreements to sell products in Iran.
The agency also pointed to several mitigating factors, including its “thorough internal investigation” to find sanctions compliance “deficiencies” and its efforts to develop compliance training and implement sanctions screening. OFAC also pointed to the “benign consumer nature” of Murad’s cosmetic products and the “small overall share” of the company’s overall sales that involved Iran. Murad also hadn’t received a penalty notice in the previous five years and cooperated with OFAC’s investigation.
OFAC said the Murad executive didn’t voluntarily disclose the violations, which also represented an “egregious case.” The agency said the official was “aware” of the exports to Iran, failed to make sure the UAE distributor stopped sales to Iran and oversaw multiple departments responsible for the export despite knowing they were illegal.
The agency could have imposed a $2.7 million fine against the executive but settled on a lesser amount partly because the person no longer works for Murad and isn’t “engaged in international business activity,” the exports involved “benign consumer goods,” the person hadn’t received a penalty notice in the previous five years and cooperated with OFAC’s investigation.
A Unilever spokesperson said the company is "committed to complying with U.S. economic sanctions laws, and to working to ensure that all our subsidiaries and acquired businesses do as well." Unilever "extended our full cooperation to U.S. authorities to resolve this matter," the spokesperson said in a May 18 email. Murad didn't respond to a request for comment.
OFAC said the case highlights that U.S. sanctions on Iran “encompass a wide range of potentially violative conduct,” and companies with sanctions exposure need “measures to ensure that senior management both commit to and maintain a culture of compliance throughout the company.”
It also pointed to the importance of “clear and efficient reporting streams” within a company “that can rapidly identify red flags for further evaluation.” Sometimes a foreign company looking to acquire a U.S. company “may lack sufficient familiarity with U.S. sanctions laws,” which “could prevent the prompt identification of and response to potentially prohibited conduct.” Firms should be careful when conducting “pre- and post-acquisition due diligence,” OFAC said, adding companies “should closely oversee their new business elements, in addition to their pre-existing units, to identify any sanctions-related risks” after the transaction completes.