Office of Foreign Assets Control Once Again Warns of Potential Liability of U.s. Parent Companies for Sanctions Violations Committed by Foreign Subsidiaries

• Publication year: 2024
• Citation: Vol. 1 No. 2

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H. Christopher Boehning, Jessica S. Carey, John P. Carlin, Michael E. Gertzman, Roberto J. Gonzalez, Brad S. Karp, Mark F. Mendelsohn, Richard S. Elliott, David Fein, David K. Kessler, Jacobus J. Schutte, Samuel Kleiner, and Jacob Wellner ^*

In this article, the authors explain that a recent enforcement action by the U.S. Department of the Treasury's Office of Foreign Assets Control underscores that it may be prudent for U.S. companies with global operations to review their sanctions compliance programs to ensure that those programs are appropriate for their risk profiles. The authors also discuss five key areas of a compliance program that a company may want to consider reviewing.

The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) recently announced a $9,618,477 settlement agreement with 3M Company (3M), a global manufacturing company based in Minnesota, regarding 54 apparent violations of OFAC's Iran sanctions regulations. ¹

As described below, these apparent violations relate to an agreement that a 3M subsidiary entered into in 2016 and conduct that occurred between 2016 and 2018. ² 3M voluntarily disclosed the matter to OFAC.

OFAC concluded that 3M's subsidiary in Dubai, 3M Gulf Limited (3M Gulf), and subsidiary in Switzerland, 3M (East) AG (3M East), engaged in sales of reflective license plate sheeting to a German reseller that "3M knew or should have known would be resold to an arm of the [Law Enforcement Forces] of Iran." ³

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According to OFAC, even before 3M East signed the agreement with the German reseller, senior employees at 3M East and 3M Gulf were alerted that the end user in Iran was affiliated with Iran's Law Enforcement Forces. ⁴ Nevertheless, 3M East moved forward with signing the agreement and these employees "dismissed the need for further investigation" and "repeatedly misrepresented" the nature of the transactions in internal discussions. ⁵ OFAC concluded—and treated as "aggravating factors"—that "3M Gulf senior managers willfully violated U.S. sanctions laws" and that numerous other 3M employees (e.g., trade compliance personnel) were "reckless" in "failing to properly evaluate the proposed sales" and "ignor[ing] ample evidence" of the violations. ⁶ The enforcement action highlights that even where some transactions relating to a sanctioned jurisdiction are permitted, a company must perform appropriate diligence on the end user. ⁷

In announcing the settlement, OFAC emphasized that "parent companies are expected to oversee compliance with applicable U.S. sanctions laws within their subsidiaries, and to empower employees to alert headquarters trade compliance when business dealings need further review." ⁸ This is particularly relevant where the subsidiaries may have relationships with Iran or Cuba, as OFAC's sanctions programs generally require foreign subsidiaries of U.S. companies to comply with the sanctions on those countries. ⁹ This enforcement action builds on a string of enforcement actions that OFAC has brought against U.S. parent corporations for violations of the Iran sanctions regulations by their foreign subsidiaries.

While OFAC determined that the apparent violations were egregious, OFAC also found that there were a number of mitigating factors, including 3M's remedial efforts to:

1. Add trade compliance counsel,
2. Terminate the employment of or formally reprimand six employees,
3. Enhance sanctions compliance measures specific to the license plate business and enhance due diligence for any business involving a sanctioned country or region, and
4. Enhance trade compliance training for all applicable employees. ¹⁰

This enforcement action underscores that it may be prudent for U.S. companies with global operations to review their sanctions

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compliance programs to ensure that those programs are appropriate for their risk profiles. There are five key areas of a compliance program, discussed below, that a company may want to consider reviewing.

Ensure Appropriate Sanctions Oversight of Foreign Subsidiaries

It is important for U.S. companies with global operations to review whether their foreign subsidiaries are taking appropriate measures to comply with U.S...