Regulatory intelligence for US exporters

OFAC, BIS Fine Energy Equipment Supplier for Illegal Exports, Violating Iran Sanctions

The Commerce and Treasury departments fined a Dubai energy equipment supplier and its U.S. affiliate more than $430,000 for illegally exporting goods to Iran, the agencies said July 19. The U.S. fined Dubai-based Alfa Laval Middle East (AL Middle East) $415,695 for exporting Gamajet brand storage tank cleaning units from the U.S. to Iran and fined Virginia-based Alfa Laval (AL U.S.) $16,875 because its subsidiary referred an Iranian “business opportunity” to AL Middle East, according to enforcement orders issued this week.

Commerce’s Bureau of Industry and Security said both companies, whose parent is Sweden-based Alfa Laval AB, had “specific knowledge” of the “long-standing and well-known” U.S. trade embargo against Iran. The Treasury’s Office of Foreign Assets control said neither affiliate voluntarily self-disclosed the violations. It classified AL Middle East’s infractions as an egregious case. OFAC said AL U.S.’s violations constituted a non-egregious case.

The violations began when Alfa Laval Tank Equipment (AL Tank), then a Pennsylvania-based subsidiary of AL U.S., helped refer a potential Iranian client to its parent company in 2015, OFAC said. AL Tank had received an email from Iran-based Alborz Pakhsh Parnia, which wanted to buy Gamajet cleaning units for its storage tanks. AL Tank eventually referred the Iranian client to AL Middle East despite emailing the Iranian company that “we can not [sic] sell US made equipment into your country at this time,” OFAC said.

AL Middle East developed a plan with another affiliate, Alfa Laval Iran (AL Iran), to “falsely” name a Dubai company as the end-user on U.S. export documents, OFAC said. A sales manager from AL Middle East met with the Iranian company in Iran in 2016 to discuss the plan, and AL Middle East officials strategized to keep AL Tank “in the dark regarding the ultimate destination of the units.” When AL Tank asked for the name of the end-user, AL Middle East’s senior sales engineer said the equipment was destined for a company in Dubai. The Dubai company was falsely listed in Electronic Export Information filings, BIS said.

OFAC said the first order was valued at about $18,000, but the affiliates began to prepare more shipments when the Iranian company asked to make 20 more purchases worth about $180,000. These preparations continued despite every Alfa Laval Group employee having received a January 2016 memo from a company lawyer saying that “any transactions involving U.S. persons, USD, or U.S. origin/content products are still prohibited under the remaining U.S. sanctions on Iran.”

Commerce’s BIS said it uncovered the scheme after it asked for post-shipment verification from AL Tank in April 2016, which showed the tank cleaning products were reexported to Iran. Jonathan Carson, special agent in charge of BIS’s New York field office, said the “use of the United Arab Emirates as a false final destination for shipments going to Iran will aggressively be enforced.”

“BIS will not tolerate U.S. companies illegally supporting Iran’s petroleum sector,” Kevin Kurland, BIS’s acting assistant secretary for export enforcement, said in a statement. “Exporters that facilitate prohibited transactions and falsify end users to divert goods to Iran are warned that we will find you and there will be significant costs imposed.”

Although OFAC said both AL Middle East and AL Tank violated the Iranian Transactions and Sanctions Regulations, it said AL Middle East’s violations were more severe. Aggravating factors included its willful violations of the ITSR by hiding the true end-user of the products from AL Tank, that its sales manager “formed and participated in the conspiracy” to violate the ITSR and that AL Middle East “caused harm to the integrity” of the U.S. sanctions program.

Aggravating factors for AL Tank included failing to “heed numerous warning signs” that the end-user was in Iran and damaging the U.S. sanctions program by referring an Iranian business opportunity to a foreign affiliate.

OFAC pointed to several mitigating factors for both companies, including that they hadn’t received a penalty notice in the previous five years and that they imposed several remedial measures to boost their compliance programs, improve their screening procedures, bolster training and discipline their employees. The agency also said both companies cooperated substantially with the government’s investigation.

OFAC said non-U.S. companies -- especially those doing business in multiple countries -- should be aware that their orders in the U.S. could trigger compliance issues. Businesses should also be careful not to refer business opportunities involving sanctioned regions. The agency also stressed that global companies should train their employees on sanctions requirements and empower them to report illegal transactions.

If the companies don’t comply with the terms of their settlement agreements with OFAC and BIS or don’t fully pay the fine, BIS said it may revoke their export privileges. An Alfa Laval spokesperson didn’t comment.