An OFAC Civil Penalty Settlement Reminder that SMEs Must Perform Due Diligence and have a Compliance Program

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This morning’s release from the Department of the Treasury, Office of Foreign Assets Control is a stark reminder that export controls and economic sanctions compliance apply equally to small businesses that export.

Houston-based Stanley Drilling Equipment & Supply, Inc. agreed to pay just over $84,000 to settle a civil penalty case involving alleged violations of the Iranian Transactions and Sanctions Regulations (“ITSR”).  OFAC alleged that in 2008, the company attempted to export 4 shipments and successfully exported 2 shipments of unidentified goods from the U.S. the UAE, “with reason to know that the shipments were intended specifically for supply, transshipment, or reexportation to an oil drilling rig located in Iranian waters.”  The goods were valued at just over $93,000.

Stanley Drilling faced a base penalty amount of $156,000.  Under OFAC’s Economic Sanctions Enforcement Guidelines, it was noted that the company did not have an OFAC compliance program in place at the time of the violations; the transactions were particularly harmful to U.S. sanctions program objectives because they aided the development of Iranian petroleum resources; but the harm to OFAC sanctions program objectives was lessened since 4 of the 6 shipments were detained and did not leave the U.S.  OFAC also noted that Stanley Drilling did not have any prior OFAC violations and is a small company (a check on the World Wide Web did not reveal a company website).

Notably, OFAC found that Stanley Drilling “did not appear to have actual knowledge that the drilling rig was destined for or located in Iranian waters,” but it “had reason to know these facts” because the information was publicly available at the time of the transactions.  In other words, Stanley Drilling failed to perform the necessary due diligence to make these export sales.  It did not follow the “Know Your Customer” mantra.  As the settlement also points out, despite being a small company, an exporter really must have an OFAC compliance program.  Rather obviously, this would be a particularly good practice to follow for companies selling oil/gas equipment to customers in the Middle East.

This penalty settlement clearly shows that small and medium-size enterprises (SMEs) simply cannot believe that U.S. export controls and economic sanctions do not apply to them or that their export sales will “fly under the radar” of government agencies.  They must perform due diligence early in the sales process, at the time of shipment, and even post-sale to avoid even unintentional violations.  To further mitigate the risk of violations, a written export compliance program, including OFAC compliance, is not just a best practice, but truly a necessity.

For assistance with understanding and complying with export controls and economic sanctions laws, regulations, and Executive Orders, as well as representation before BIS and OFAC in investigations, civil penalty, and voluntary self-disclosures, please contact Jon P. Yormick, Attorney and Counsellor at Law, [email protected]  or by calling +1.866.967.6425 (Toll free in Canada & U.S.), +1.216.928.3474, or Skype at jon.yormick.

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