OFAC Fines German Firm, Orders Compliance Improvements After Alleged Sanctions Violation

Aiotec didn’t disclose the alleged violation, which OFAC called “egregious.” As part of a settlement agreement, the company promised to improve its compliance procedures, controls, training and more, including through testing and audits. It must also submit an annual certification to OFAC for the next seven years to certify that it’s following those commitments. OFAC will suspend more than $10 million of the penalty as long as Aiotec fulfills the terms of the agreement and applies some of that money to future compliance costs.

The agency said Aiotec was involved as the buyer of a decommissioned polypropylene plant in Australia in 2015, where Aiotec was responsible for dismantling and removing the plant from the site. A sale agreement between the U.S. broker of the plant and Aiotec barred Aiotec from reselling the plant to any U.S.-sanctioned region.

Although Aiotec said it planned to move the plant to Turkey, it secretly worked with an Iran-based subsidiary, Aiotec Middle East Co, and Iranian petrochemical development company Petro-Iranian Downstream Industries Development to divert the plant to Iran, OFAC said.

Aiotec began dismantling the plant in 2016 and exporting it in parts from the Australian port of Newcastle to the port of Bandar Imam Khomeini in Iran between 2017 and 2019. The company hired two freight forwarders to transport the parts to Iran, instructing them not to register the end user’s name and address as “Iran” with Australia’s customs office, but instead to report the destination as either the United Arab Emirates or Turkey.

Aiotec continued to “conceal” the actual destination of the plant in response to follow-up questions from the U.S. broker, OFAC said, certifying in end-use certificates that the plant was being sold to a Turkish company and would be installed in Turkey.

But OFAC said the U.S. broker received a copy of the first page of Aiotec’s agreement with the Iranian businesses from an “anonymous source” in 2018 and confronted Aiotec about the issue. That included a demand that Aiotec submit proof that it hadn’t exported the plant to Iran, including by providing the bills of lading for portions of the plant that Aiotec said had already been shipped to Turkey.

In response to those demands, OFAC said Aiotec made “numerous misrepresentations and produced false documents” to the U.S. broker. The German company’s outside lawyer denied that Aiotec was sending the parts to Iran, the agency said, and the company also gave the U.S. broker a copy of a “fraudulent Cooperation and Partnership Agreement” between Aiotec and the Turkish firm.

Based on these “misrepresentations,” OFAC said the U.S. and Australian companies involved in the sale “restored Aiotec’s access to the plant site” in November 2018 on the condition that Aiotec provide them with a master bill of lading issued by the transporting vessel, rather than the freight forwarder, which they believed would show whether the remaining portions of the plant were being shipped to Turkey. But Aiotec again gave the U.S. broker false documents, which showed that the plant parts were being shipped to Turkey when they were actually being sent to Iran, OFAC said.

OFAC said Aiotec bought the plant for $9.7 million with 11 payments, nine of which were made to the U.S. broker’s dollar-denominated account at an American bank. It said that amounted to "one apparent violation" of the Iranian Transactions and Sanctions Regulations.

The agency said it could have imposed a maximum civil penalty of $19.4 million but settled on a lesser amount because Aiotec agreed to cooperate with OFAC and because Aiotec is a small company with relatively few employees and “limited funds and profits.” The company also agreed to “invest substantial resources and take remedial actions to implement sanctions compliance commitments,” including by putting in place a sanctions compliance program with written policies and procedures, hiring a dedicated compliance officer, and undergoing annual compliance audits by a third party.

OFAC also pointed to several aggravating factors, including that Aiotec “willfully” violated U.S. sanctions laws and regulations and conspired to cause a U.S. company to indirectly sell the plant to Iran. The agency also noted that Aiotec’s senior management “made multiple false representations” over the course of four years about the sale, taking steps to hide the real end-user. The company “caused substantial harm to sanctions program objectives by providing Iran with a polypropylene plant,” OFAC said, which is “a lucrative asset that would otherwise be difficult for it to build or obtain.”

The agency noted that even though Aiotec is a German company and the plant was based in Australia, the transactions were subject to U.S. jurisdiction because of the involvement of the U.S. company, which acted as the reseller. And because Aiotec sent the funds to U.S. financial institutions, it “exposed itself to further potential liability under” the Iranian Transactions and Sanctions Regulations.

“Companies seeking to do business with Iran, or any U.S.-sanctioned jurisdiction or person, should carefully consider all potential U.S. touchpoints in their transactions,” OFAC said.

The agency also said the case highlights the “particular damage apparent conspiracies can cause when multiple actors work” together. Even though the U.S. company had a sanctions compliance program in place and “took multiple steps” to confirm the actual destination of the plant, Aiotec and its co-conspirators were able to “deceive the U.S. company by falsifying documents and making repeated false statements,” it said. “OFAC will continue to impose strict penalties on such deceptive actors.”

Aiotec didn’t immediately respond to a request for comment.